UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File Number
December 31, 1996 1-8233
USF&G CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 52-1220567
(State of Incorporation) (IRS Employer Identification No.)
6225 Smith Avenue, Baltimore, Maryland 21209
(Address of principal executive offices) (zip code)
Telephone: 410-547-3000
- - --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
$4.10 Series A Convertible Exchangeable Registered-New York Stock Exchange
Preferred Stock, Par Value $50 Registered-Pacific Stock Exchange
Preferred Share Purchase Rights Registered-New York Stock Exchange
Registered-Pacific Stock Exchange
Common Stock, Par Value $2.50 Registered-New York Stock Exchange
Registered-Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
- - --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 21, 1997, was $2,564,848,780.
Voting stock held by any persons who may be deemed to be affiliates under
Rule 405 would be immaterial.
The number of shares outstanding of the issuer's common stock as of March 21,
1997:
Common Stock, Par Value $2.50; 113,363,482 shares outstanding.
Documents Incorporated by Reference:
Portions of the 1996 Annual Report to Shareholders are incorporated by
reference into Parts I and II.
Portions of the definitive proxy statement for the Annual Meeting of
Shareholders scheduled for May 21, 1997, are incorporated by reference into
Part III.
Exhibit Index begins on page 13.
<PAGE>
USF&G CORPORATION Index
Part I
Item 1. Description of Business
1.1. General 1
1.2. Business Segments 1
1.3. Distribution Systems 2
1.4. Competition 3
1.5. Investments 3
1.6. Property/Casualty Loss Reserves 3
1.7. Life Benefit Reserves 8
1.8. Geographical Distribution 8
1.9. Executive Officers of the Registrant 9
Item 2. Business Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Part II
Item 5. Market for Registrant's Common Equity and
Related Shareholder Matters 11
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 11
Part III
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial Owners
and Management 12
Item 13. Certain Relationships and Related Transactions 12
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 13
<PAGE>
USF&G CORPORATION Part I
In connection with, and because it desires to take advantage of, the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995,
USF&G Corporation (the "Corporation") cautions readers regarding certain
forward-looking statements in the following discussion and elsewhere in this
Form 10-K and in any other statements made by, or on the behalf of, the
Corporation, whether or not in future filings with the Securities and Exchange
Commission. Forward-looking statements are statements not based on historical
information and which relate to future operations, strategies, financial results
or other developments. In particular, statements using verbs such as "expect",
"anticipate", "hope", "believe" or words of similar import generally involve
forward-looking statements.
Forward-looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Corporation's
control and many of which, with respect to future business decisions, are
subject to change. These uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from those expressed
in any forward-looking statements made by, or on behalf of, the Corporation.
Whether or not actual results differ materially from forward-looking statements
may depend on numerous foreseeable and unforeseeable events or developments,
some of which may be national or international in scope, such as general
economic conditions and interest rates, some of which may be related to the
insurance industry generally, such as pricing competition, industry
consolidation and regulatory developments, and others of which may relate to the
Corporation specifically, such as risks with implementing business realignment
strategies and related agency plant or field organization implications, adequacy
of reserves, exposure to catastrophe losses, technological risks inherent in
developing its new technological infrastructure, adequacy of underwriting
disciplines, credit and other risks associated with the Corporation's investment
portfolio, and other factors. The Corporation disclaims any obligation to update
forward-looking information.
ITEM 1. DESCRIPTION OF BUSINESS
1.1. General
USF&G Corporation is a holding corporation organized in 1981 as a Maryland
corporation. United States Fidelity and Guaranty Company ("USF&G Company"),
organized in 1896 under Maryland law, is the predecessor registrant of the
Corporation. The term "Corporation" as used in this Form 10-K refers to the
Corporation and all of its subsidiaries. As of December 31, 1996, the
Corporation had approximately 6,100 employees.
USF&G is primarily engaged in the business of insurance. Property/casualty
insurance is written primarily by USF&G Company. Life insurance and annuities
are written primarily by Fidelity and Guaranty Life Insurance Company ("F&G
Life"). Noninsurance operations are composed primarily of the parent company and
asset management services.
1.2. Business segments
Financial information about the Corporation's business segments is set forth in
Note 16, "Information on Business Segments", of the Notes to Consolidated
Financial Statements in the Corporation's 1996 Annual Report to Shareholders
incorporated herein by reference. A description of the Corporation's principal
business segments begins below with the property/casualty insurance segment, and
continues on page 2 of this Form 10-K with the life insurance segment and parent
and noninsurance operations.
Property/casualty insurance segment
USF&G Company currently underwrites most forms of property/casualty insurance.
USF&G Company's property/casualty operations are grouped into the following
portfolio of strategic businesses: the Commercial Insurance Group ("CIG"), the
Family and Business Insurance Group ("FBIG"), and Specialty Businesses, which
include Discover Re Managers, Inc. ("Discover Re"), F&G Re, Inc. ("F&G Re") and
the Surety Group. The property/casualty segment accounted for 88 percent of
USF&G's revenues before net realized gains for the year ended December 31, 1996
and 70 percent of its total assets at Decemeber 31, 1996.
Coverages offered by CIG provide protection related to property loss, liability
claims and workers' compensation benefits to businesses and governmental
entities, and fidelity bonds for financial institutions. Property loss and
liability claims insurance protects against loss from damage to the insured's
covered properties and protects against legal liability for injuries to other
persons or damage to their property arising from the insured's business
operations. Workers' compensation provides benefits to employees, as mandated by
state laws, for employment-related accidents, injuries or illnesses. Fidelity
bonds indemnify employers against the dishonesty or default of persons in their
employ.
FBIG provides homeowners insurance and standard and nonstandard automobile
insurance, which include aspects of property loss and liability risks, as well
as small-size account commercial business. Homeowners policies protect against
loss of dwellings and contents arising from a variety of perils, as well as
liability arising from ownership or occupancy. Automobile policies cover
liability to third-parties for bodily injury and property damage, and cover
physical damage to the insured's own vehicle resulting from collision and
various other perils. Small-size account commercial business includes property
loss, liability, claims and workers' compensation, as well as automobile and
other coverages.
Discover Re provides insurance, reinsurance and related services to the
alternative risk transfer market, primarily in the municipalities,
transportation, education and retail markets. Through alternative risk transfer,
a company self-insures the predictable frequency portion of its own losses and
purchases insurance for the less predictable, high-severity losses that could
have a major financial impact on the company.
USF&G Company also operates a separate reinsurance division which underwrites
treaty reinsurance and is composed of various wholly-owned subsidiaries. The
lead company in this group, F&G Re, acts as the reinsurance underwriting manager
and solicits and services assumed reinsurance for USF&G Company. F&G Re markets
reinsurance in North America and in specific foreign countries (mainly in
Western Europe and Japan). F&G Re recently established an office in Hong Kong
and expanded its presence in the Lloyd's of London markets through the
acquisition of Ashley Palmer, Ltd., a managing general agency. Reinsurance
prices and conditions are not normally subject to the same state regulation
applicable to the primary insurance market because reinsurers contract solely
with other insurance companies.
Surety bonds guarantee the performance of a principal who undertakes contractual
or statutory obligations, and indemnify third-party obligees for damages caused
by the principal's failure to perform.
USF&G Company reinsures portions of its policy risks with other insurance
companies or underwriters and remains contingently liable under these contracts
(ceded reinsurance). In addition, it assumes policy risks from other insurance
companies and through participation in pools and associations (assumed
reinsurance). (Refer to Section 4.2, "Reinsurance", of Management's Discussion
and Analysis of Financial Condition and Results of Operations and Note 12,
"Reinsurance", of the Notes to Consolidated Financial Statements in the
Corporation's 1996 Annual Report to Shareholders incorporated herein by
reference.)
Excess of loss reinsurance is used to limit USF&G Company's exposure to large
losses or catastrophic events. The following table summarizes USF&G Company's
most significant treaty placements as of December 31, 1996.
USF&G Reinsurance
Treaty Retention Limits*
---------------------------------
Property catastrophe $75 million $175 million
Property per risk 3 million 97 million
Surety 5 million 65 million
---------------------------------
*In excess of the retention level.
Financial information and further descriptions of the businesses and products
discussed above are set forth in Section 2, "Strategic Overview", and Section
3.1, "Property/casualty insurance", of Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Corporation's 1996 Annual
Report to Shareholders incorporated herein by reference.
Life insurance segment
F&G Life sells many forms of annuity and life insurance products, including
single premium deferred annuities ("SPDAs"), structured settlement annuities,
tax sheltered annuities("TSAs"), single premium immediate annuities and
universal life and term life insurance. The life insurance segment accounted
for 12 percent of USF&G's revenues before net realized gains for the year ended
December 31, 1996 and 29 percent of its total assets at December 31, 1996.
Financial information and further descriptions of business and products
discussed above are set forth in Section 2, "Strategic Overview", and Section
3.2, "Life insurance", of Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Corporation's 1996 Annual Report to
Shareholders incorporated herein by reference.
Parent and noninsurance operations
The parent company performs corporate functions including managing the capital
requirements of the Corporation and its subsidiaries. The noninsurance
operations consist primarily of asset management services. In March 1996, the
Corporation sold its management consulting subsidiary. During 1994, the
Corporation committed to a plan to consolidate its home office operations in
Baltimore, Maryland at its Mount Washington facilities. Further information
about the plan and its progress is set forth in Section 1.2, "Facilities exit
costs/sublease income", of Management's Discussion and Analysis of Financial
Condition and Results of Operations in the 1996 Annual Report to Shareholders
incorporated herein by reference.
1.3. Distribution systems
Property/casualty insurance: USF&G Company's products have been sold primarily
by independent agents, which generally represent multiple insurance companies,
since its founding in 1896. USF&G Company's products are sold through
approximately 3,400 independent agencies in the United States on a commission
basis. In 1996, USF&G expanded its distribution channels to include retail,
wholesale and surplus lines brokers and agents.
As of December 31, 1996, USF&G Company maintained 43 production offices located
throughout the United States, to service its agents and policyholders. These
offices support the administration of underwriting standards and the delivery of
policies, primarily for CIG. In 1996, USF&G opened three Centers for Agency
Services dedicated to underwriting and policy processing for FBIG. The
Corporation also opened a centralized Claim Reception Center which provides
24-hour, seven-days-a-week claim reporting service to customers and agents
throughout the United States. In December 1996, USF&G acquired Afianzadora
Insurgentes, S.A. de C.V. ("Afianzadora"), the largest surety company in Mexico,
with 38 branch offices and a sales force of over 1,200 agents.
Life Insurance: SPDAs are sold primarily through independent agents and
insurance brokers. TSAs are sold through a national wholesaler. Structured
settlements are annuities sold predominantly to the property/casualty company in
settlement of certain of its insurance claims.
1.4. Competition
Property/casualty insurance: The property/casualty insurance industry is highly
competitive with over 2,400 companies nationwide. These insurers are not only
stock companies, but also mutual companies and other underwriting organizations.
USF&G Company ranked 24th in the industry based on 1995 statutory net premiums
written, 22nd based on 1995 statutory assets and 30th based on 1995 statutory
policyholders' surplus. USF&G Company competes with other property/casualty
insurance companies whose products are distributed through national, regional
and local independent agencies, direct sales and brokers. Consumers may also use
self-insurance, which includes captive insurance subsidiaries. Pricing is a
primary means of competition in the property/casualty industry. The industry is
currently in a period of significant price competition, which adversely affects
USF&G Company's profitability. Availability and quality of products, quality and
speed of service (including claims service), financial strength, distribution
systems and technical expertise are also important elements of competition. In
personal and other lines offered by USF&G Company, significant price competition
is experienced from direct-writing companies that do not use independent agents
and generally have lower policy acquisition costs.
Life Insurance: The Corporation's life insurance subsidiaries operate in a
competitive environment, with approximately 1,200 companies nationwide in the
industry including stock and mutual companies. F&G Life ranked 162nd based on
1995 statutory net premiums written, 110th based on 1995 statutory assets and
115th based on 1995 statutory capital and surplus.
In the life insurance industry, interest crediting rates, underwriting
philosophy, policy features, financial stability and service quality are
important competitive factors. F&G Life's products compete not only with those
offered by other life insurance companies, but also with other income
accumulation-oriented products offered by other financial institutions. The life
insurance industry has experienced considerable competitive pressure in recent
periods as a result of fluctuating interest rates.
Premium Rates: Most states have laws requiring that rate schedules and other
information be filed with a regulatory authority for substantially all property,
casualty and surety lines. Rates for life insurance are generally not regulated.
Some states permit insurers to use rates without prior regulatory approval
whereas other states prohibit implementation of new rates without such approval.
The regulatory authority may disapprove a filing if it finds that the rates are
inadequate, excessive or unfairly discriminatory. Rates are not necessarily
uniform for all insurers.
In states that require prior approval of rates, regulators usually require the
submission of historical data to justify rate increases and, accordingly, there
is often a time lag between identifying the need for rate increases and securing
such increases. The effect of this lag is particularly severe in times of rising
claims and inflation.
1.5. Investments
Investing the net cash flows from operations is a major aspect of the
property/casualty and life insurance businesses. The components of the
Corporation's investment portfolio and investment performance are discussed in
Section 5, "Investments", of Management's Discussion and Analysis of Financial
Condition and Results of Operations and Note 2, "Investments", of the Notes to
Consolidated Financial Statements in the 1996 Annual Report to Shareholders
incorporated herein by reference.
1.6. Property/casualty loss reserves
General
The reserve liabilities for property/casualty losses and loss expenses represent
estimates of the ultimate net cost of all unpaid losses and loss adjustment
expenses incurred through December 31 of each year. The reserves are determined
using adjusters' individual case estimates and actuarially-based statistical
projections.
USF&G Company's estimates of losses for reported claims are established
judgmentally on an individual case basis. Such estimates are based on a claim
adjuster's particular expertise with the type of risk involved and knowledge of
circumstances surrounding the individual claims. These estimates are reviewed on
a regular basis and updated as additional facts become known. The reserves
derived from statistical projections are subject to the effects of trends in
claim severity and frequency. Statistical projections are employed in three
specific areas: (1) to calculate bulk reserves for incurred but not reported
("IBNR") losses and provide for development of case basis loss reserves; (2) to
calculate allocated loss expense reserves; and (3) to calculate unallocated loss
expense reserves.
IBNR and Case Development Reserves: USF&G Company's estimates of IBNR and case
development reserves are derived from analyses of historical patterns of
development of paid and reported losses by accident year for each line of
business. Further segmentation into the business group components of the current
accident year projected losses is evaluated and considered within the aggregate
line of business analysis. The loss projection procedures used in this analysis
contain explicit provisions for quantifying the effect of inflation on loss
payments expected to be made in the future. This process relies on the basic
assumption that past experience adjusted for the effect of current circumstances
and likely trends is an appropriate basis for predicting future events.
Allocated Loss Expense: USF&G Company's estimates of unpaid allocated loss
adjustment expenses are based on analyses of the long-term relationship of
projected ultimate allocated loss expense to projected ultimate losses for each
line of business. By using incurred losses as a base, inflation assumptions
applicable to loss reserves are applied equally to allocated expense reserves.
Unallocated Loss Expense: Unallocated loss expense reserves are based on
historical relationships of paid unallocated expenses to paid losses by accident
year. As with allocated loss expenses, the inflation assumptions applicable to
loss reserves are presumed to apply equally to unallocated expense reserves.
The process of estimating the liability for unpaid losses and loss expenses is
inherently judgmental. The process is influenced by factors which are subject to
significant variation. Possible sources of variation include changing rates of
inflation (particularly medical cost inflation) as well as changes in other
economic conditions, the legal system and internal claims settlement practices,
among other variables. In many cases, significant periods of time may lapse
between the occurrence of an insured event, the reporting of a claim to USF&G
Company, and USF&G Company's final settlement of the claim. Almost 50 percent of
USF&G Company's loss and loss expense reserves are provided for claims which
have been incurred but not reported and for future development on reported
claims. While USF&G Company reports a single amount as the estimate for unpaid
loss and loss expenses as of each valuation date, the reported reserves should
be considered the best estimate from a range of possible outcomes. It is
unlikely that future losses and loss expenses will develop exactly as projected
and may in fact vary significantly from projections. These estimates are
continually reviewed and updated as experience develops and new information
becomes known. Any resulting adjustments are reflected in current operating
results.
Discounted loss reserves
The reserves for permanent-total disability benefits and long-term medical care
benefits under workers' compensation insurance are discounted at rates of
interest generally ranging up to four percent. The carrying amount of such
workers' compensation reserves, net of reinsurance and net of discount, was $1.3
billion, $1.5 billion and $1.6 billion at December 31, 1996, 1995 and 1994,
respectively. The discount is amortized over the expected lives of the
claimants. Discounted reserves come from three primary sources: reserves assumed
from the Workers' Compensation Reinsurance Bureau ("WCRB"), reserves assumed
from residual market pools and reserves for USF&G Company's net retained
business.
(in millions) 1996 1995 1994
- - --------------------------------------------------------------
Discount, January 1 $394 $441 $508
Accrual (10) (21) (32)
Amortization (31) (26) (35)
----------------------
Discount, December 31 $353 $394 $441
----------------------
The negative discount accrual of $10 million in 1996 results from a reduction in
the estimate of ultimate incurred losses partially offset by an increase in the
discount assumed from residual market pools. A number of claim initiatives,
including managed medical care and structured settlements for workers'
compensation medical claims, are having a favorable impact on estimates of
ultimate incurred losses. The source of the negative discount accrual of $21
million in 1995 is also a result of a reduction in the estimate of ultimate
incurred losses and acceleration in the payment pattern. An acceleration in the
payment of workers' compensation primarily attributable to structured
settlements is responsible for the negative accrual of $32 million in 1994.
Roll-forward of liability for losses and loss expenses
The following table reconciles the changes in loss and loss expense reserves for
the years presented:
(in millions) 1996 1995 1994
-----------------------
Total reserve at beginning of year, gross $6,097 $6,158 $6,370
Less reinsurance recoverables 984 1,016 1,054
-----------------------
Net balance at January 1 5,113 5,142 5,316
-----------------------
Incurred Related To:
Current year 2,030 1,856 1,752
Prior years (162) (54) (8)
-----------------------
Total incurred 1,868 1,802 1,744
-----------------------
Paid Related To:
Current year 764 635 634
Prior years 1,190 1,196 1,284
-----------------------
Total paid 1,954 1,831 1,918
-----------------------
Net balance at December 31 5,027 5,113 5,142
Plus reserves acquired 18 -- --
Plus reinsurance recoverables 987 984 1,016
-----------------------
Total reserve at end of year, gross $6,032 $6,097 $6,158
-----------------------
Analysis of loss and loss expense reserve development
The tables on the following page show property/casualty loss reserves including
(net) and excluding (gross) the effects of ceded reinsurance as recorded in the
indicated years, subsequent payments made with respect to such reserves and
re-estimates of such reserves.
The top line shows the estimated liability that was recorded at the end of each
of the indicated years for all current and prior year unpaid losses and loss
expenses. The upper portion of the table shows the cumulative amount
subsequently paid in succeeding years. The lower portion of the table shows
re-estimations of the original recorded reserve as of the end of each successive
year. Such re-estimations result from development of additional facts and
circumstances pertaining to unsettled claims. The bottom line shows the dollar
amount of the cumulative change through 1996 that is attributable to the
original recorded reserve for each prior year.
The Analysis of Gross Loss and Gross Loss Expense Reserve Development was added
in 1994. The schedule provides data gross of ceded reinsurance for the carried
reserve at year-ends 1993 through 1996 and reserve development of the 1993
through 1995 year-ends.
Conditions and trends that have affected reserve development in the past have
changed and may not necessarily occur in the future. Therefore, care should be
exercised in extrapolating future reserve redundancies or deficiencies from such
development.
<TABLE>
<CAPTION>
Analysis of Net Loss and Net Loss Expense Reserve Development*
At December 31
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(in millions) 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996**
----------------------------------------------------------------------------------------
Liability for unpaid losses
and loss expenses $4,090 $4,744 $5,208 $5,467 $5,637 $5,716 $5,564 $5,316 $5,142 $5,113 $5,027
Cumulative paid as of:
One year later 1,348 1,374 1,539 1,723 1,655 1,575 1,471 1,284 1,196 1,190
Two years later 2,164 2,258 2,614 2,795 2,746 2,534 2,394 2,091 1,947 -
Three years later 2,778 3,033 3,350 3,593 3,418 3,225 3,018 2,630 - -
Four years later 3,313 3,550 3,939 4,055 3,929 3,692 3,428 - - -
Five years later 3,640 3,992 4,265 4,435 4,293 3,995 - - - -
Six years later 3,864 4,240 4,542 4,714 4,528 - - - - -
Seven years later 4,056 4,456 4,773 4,899 - - - - - -
Eight years later 4,234 4,648 4,924 - - - - - - -
Nine years later 4,401 4,776 - - - - - - - -
Ten years later 4,514 - - - - - - - - -
Liability re-estimated:
One year later 4,210 4,884 5,236 5,679 5,767 5,793 5,625 5,308 5,088 4,951
Two years later 4,444 4,943 5,485 5,800 5,907 5,923 5,645 5,264 5,005 -
Three years later 4,586 5,109 5,566 5,960 6,151 5,975 5,620 5,246 - -
Four years later 4,722 5,287 5,761 6,246 6,216 5,959 5,589 - - -
Five years later 4,917 5,442 6,029 6,331 6,209 5,933 - - - -
Six years later 5,049 5,700 6,125 6,319 6,214 - - - - -
Seven years later 5,279 5,789 6,124 6,352 - - - - - -
Eight years later 5,365 5,790 6,175 - - - - - - -
Nine years later 5,385 5,842 - - - - - - - -
Ten years later 5,428 - - - - - - - - -
Cumulative (deficiency)
excess (1,338) (1,098) (967) (885) (577) (217) (25) 70 137 162
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Analysis of Gross Loss and Gross Loss Expense Reserve Development*
At December 31
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(in millions) 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996**
----------------------------------------------------------------------------------------
Liability for unpaid losses
and loss expenses $ - $ - $ - $ - $ - $ - $ - $6,370 $6,158 $6,097 $6,014
Cumulative paid as of:
One year later - - - - - - - 1,571 1,431 1,387
Two years later - - - - - - - 2,547 2,348 -
Three years later - - - - - - - 3,217 - -
Liability re-estimated:
One year later - - - - - - - 6,354 6,103 5,977
Two years later - - - - - - - 6,328 6,110 -
Three years later - - - - - - - 6,417 - -
Cumulative (deficiency)
excess - - - - - - - (47) 48 120
---------------------------------------------------------------------------------------
</TABLE>
*Certain reserves are recorded on a discounted basis to reflect the value of
timing differences between the recording of reserves and subsequent payment.
The amortization of that discount is included in the reserve deficiencies shown
above.
**The liability for unpaid losses and loss expenses at December 31, 1996
excludes reserves acquired through the 1996 acquisition of Afianzadora.
Loss and loss expenses recorded in the current period financial statements are
affected by changes in estimates of insured events occurring in prior periods.
Losses incurred in 1996 and 1995 included $111 million and $77 million,
respectively, of favorable development on prior years' experience in the assumed
reinsurance business. Given the significant uncertainty in reserving for assumed
reinsurance, favorable development from loss reserves established in prior years
is generally applied to establish reserves in the current accident year. Another
$52 million of favorable development in 1996 related to the workers'
compensation line, which resulted primarily from the recognition of the effect
on reserve estimation models of the increased use of structured settlements to
close claims. Loss reserve decreases in workers' compensation were substantially
offset by reserve increase in general liability, commercial auto and surety
lines for the current accident year.
The reserve development of $120 million on prior years' gross reserves is
$42 million less favorable than on a net basis. This is primarily driven by
adverse development on primary Surety business which was ceded to reinsurers.
<TABLE>
<CAPTION>
Effect of Reserve Re-estimations on Calendar Year Operations
(Increase) Decrease in Reserves
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total by
Accident
(in millions) 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Year
----------------------------------------------------------------------------------------
Accident Years:
1986 & Prior $(120) $(234) $(142) $(136) $(195) $(132) $(230) $(86) $(20) $(43) $(1,338)
1987 - 94 83 (30) 17 (23) (28) (3) 19 (9) 120
1988 - - 31 (83) 97 (40) (10) (7) 2 1 (9)
1989 - - - 37 (40) 35 (18) 11 11 18 54
1990 - - - - (9) 20 42 20 (5) 28 96
1991 - - - - - 63 114 13 9 31 230
1992 - - - - - - 69 32 9 5 115
1993 - - - - - - - 28 19 (13) 34
1994 - - - - - - - - 10 65 75
1995 - - - - - - - - - 79 79
----------------------------------------------------------------------------------------
Total by calendar
year $(120) $(140) $ (28) $(212) $(130) $ (77) $(61) $ 8 $54 $162 $ (544)
----------------------------------------------------------------------------------------
</TABLE>
In the table above, all entries are shown net of ceded reinsurance. Each column
total shows reserve re-estimates made in the indicated calendar year for each
accident year. Adverse development on accident years prior to 1986 is primarily
attributable to reinsurance assumed on workers' compensation residual market
pools and a change in the allocation of general liability reserves from accident
years in the late 1980s to the earlier period. Favorable development in the more
recent accident years is attributable to assumed reinsurance business.
Loss portfolio transfers
Also included in the loss and loss expense reserve development tables are
various loss portfolio transfer transactions. These transactions are reinsurance
contracts that do not involve the same type of risk as traditional reinsurance.
In a loss portfolio reinsurance contract, USF&G Company assumes another
insurer's outstanding loss reserves for a price equal to their discounted value
plus a fee. These contracts generally provide for fixed loss payments at
specified future dates. The financial risk involved is whether the investment
income earned on the cash received will cover the discount associated with the
losses assumed. This financial risk is controlled by the Corporation's
asset/liability management techniques, which involve matching the maturities of
the investment portfolio to expected patterns of future claim and benefit
payments.
Loss portfolio transfers have had no impact on reported reserve deficiencies and
no future loss development, either adverse or favorable, is anticipated. Loss
portfolio transfers included in outstanding reserves were as follows:
(in millions) At December 31
------------------
1996 $ 34
1995 52
1994 86
1993 110
1992 123
1991 279
1990 324
1989 397
1988 394
1987 355
------------------
Structured settlements
Structured settlements represent the settlement of claims through the purchase
of annuities. While they result in accelerated claim payments, structured
settlements generally reduce the ultimate amount of losses paid. Structured
settlements are used primarily in the third-party liability and workers'
compensation lines of business. These types of settlements were not used
extensively on liability lines until 1985. Their use was extended to workers'
compensation indemnity claims in 1987. The number of such settlements has grown
steadily and they are having an impact on claim payment patterns. USF&G Company
continues to develop procedures to ensure that the impact of structured
settlements is given appropriate recognition in estimating ultimate reserve
liabilities. In 1996, reserves were reduced by $30 million recognizing the
effect on reserve estimation models of the increased use of structured
settlements to close such claims.
Reconciliation of liability for loss and loss expenses from SAP to GAAP
The following table presents the differences between property/casualty insurance
claim reserves reported in accordance with GAAP in the consolidated financial
statements in the 1996 Annual Report to Shareholders, and the combined annual
statement filed with state insurance departments in accordance with statutory
accounting practices ("SAP"):
At December 31
(in millions) 1996 1995 1994
-----------------------
SAP basis property/casualty reserves $4,637 $4,739 $4,875
Reserves of foreign subsidiaries
(consolidated for GAAP but not SAP) 408 374 267
-----------------------
GAAP basis property/casualty reserves, net 5,045 5,113 5,142
Reinsurance receivable 987 984 1,016
-----------------------
GAAP basis property/casualty
reserves, gross $6,032 $6,097 $6,158
-----------------------
1.7. Life benefit reserves
Financial information and further descriptions of life benefit reserves are set
forth in Note 1.6, "Unpaid losses, loss expenses and policy benefits", and Note
3.2, "Life benefit reserves", of the Notes to Consolidated Financial Statements
in the Corporation's 1996 Annual Report to Shareholders incorporated herein by
reference.
1.8. Geographical distribution
The risks insured by the Corporation's insurance subsidiaries are geographically
diversified primarily throughout the United States. The Corporation has a
subsidiary to market surety insurance in Canada, and in December 1996 expanded
into Mexico with the acquisition of Afianzadora. Reinsurance risks are incurred
throughout North America and specific foreign countries (mainly in Western
Europe and Japan). Total assets and revenues of foreign operations were not
material in 1996. Property/casualty voluntary direct premiums written are
diversified throughout the United States. The following table shows the
composition of statutory premium income of the Corporation's life insurance
operations by region for the year ended 1996.
1996
----------
Region:
Northeast 35%
Northwest 26
South 14
Southwest 13
Midwest 12
----------
Total 100%
----------
1.9. Executive officers of the Registrant
- - --------------------------------------------------------------------------------
Name Age Positions and Office with Registrant or
Significant Subsidiaries
- - --------------------------------------------------------------------------------
Norman P. Blake, Jr. 55 Chairman of the Board, President, and
Chief Executive Officer
Glenn W. Anderson 44 President-Commercial Insurance Group
John R. Berger 44 President-F&G Re, Inc.
Kenneth E. Cihiy 50 Executive Vice President-Claim
Gary C. Dunton 41 President-Family and Business Insurance Group
Dan L. Hale 52 Executive Vice President-Chief Financial Officer
Robert J. Lamendola 52 President-Surety Group
Thomas K. Lewis, Jr. 44 Executive Vice President-
Chief Information Officer
Stephen W. Lilienthal 47 Executive Vice President-
Field Development and Operations
John A. MacColl 48 Executive Vice President-
General Counsel and Human Resources
Andrew A. Stern 39 Executive Vice President-
Strategic Planning and Reinsurance Operations
Harry N. Stout 44 President-F&G Life
John C. Sweeney 52 Chairman-Falcon Asset Management, Inc., and
Senior Vice President-Chief Investment Officer
- - --------------------------------------------------------------------------------
All persons in the preceding table are officers of the Registrant except Glenn
W. Anderson, Gary C. Dunton, Kenneth E. Cihiy, Robert J. Lamendola and Stephen
W. Lilienthal, who are executive officers of USF&G Company; John R. Berger who
is an executive officer of F&G Re, Inc.; and Harry N. Stout who is an executive
officer of F&G Life.
Mr. Blake was Chairman and Chief Executive Officer of Heller International
Corporation, a world-wide commercial financial services organization, and joined
the Corporation in November 1990. Mr. Anderson was Vice President of Strategic
Target Marketing with Fireman's Fund Insurance Company, a domestic insurance
company, and joined the Corporation in December 1992. Mr. Berger was Assistant
Secretary of General Reinsurance Company, an insurance and financial services
company, and joined the Corporation in November 1983. Mr. Cihiy was Resident
Vice President of Sacramento Field Operations with Aetna Life and Casualty
Company, an insurance and financial services company, and joined the Corporation
in May 1993. Mr. Dunton was Vice President and Division Manager of Standard
Lines with Aetna Life and Casualty Company and joined the Corporation in
December 1992. Mr. Hale was President and Chief Executive Officer of Chase
Manhattan Leasing Company, an international leasing company, and joined the
Corporation in February 1991. Mr. Lamendola was Managing Director of Marsh &
McLennan, Inc. and joined the Corporation in June 1992. Mr. Lewis was Vice
President and General Manager for Europe, Middle East, and Africa for Seer
Technologies, and joined the Corporation in November 1993. Mr. MacColl was
previously a partner in the Baltimore office of the law firm of Piper & Marbury,
and joined the Corporation in January 1989. Mr. Stern was Partner and Vice
President of Booz Allen & Hamilton, a national business consulting firm, and
joined the Corporation in May 1993. Mr. Stout was Senior Vice President of
United Pacific Life Insurance Company, and joined the Corporation in May 1993.
Mr. Sweeney was a Principal and Practice Director with Tillinghast/Towers
Perrin, an asset management and consulting company, and joined the Corporation
in November 1992.
ITEM 2. BUSINESS PROPERTIES
Real estate owned and used in the regular conduct of business consists of
properties located in various cities throughout the United States. The
Corporation's Mount Washington Center, located in Baltimore, Maryland, is the
principal owned property. This is the headquarters for the property/casualty
insurance operations, and the location of the executive offices, information
systems, administrative services, and training and development complexes.
In addition, the Corporation leases approximately 130 offices in various cities
in the regular course of business. The principal leased property is an office
building in Baltimore, Maryland, which was sold in 1984 and leased back by the
Corporation. During 1994, the Corporation developed and committed to a plan to
consolidate its home office operations in Baltimore, Maryland at its Mount
Washington facility. (Refer to Section 1.2, "Facilities exit costs/sublease
income", of Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Corporation's 1996 Annual Report to Shareholders
incorporated herein by reference.)
ITEM 3. LEGAL PROCEEDINGS
The Corporation's insurance subsidiaries are routinely engaged in litigation in
the normal course of their business, including defending claims for punitive
damages. As insurers, they defend third-party claims brought against their
insureds, as well as defend themselves against first-party coverage claims.
In the opinion of management, such litigation and the litigation described in
Note 14, "Legal Contingencies", of the Notes to Consolidated Financial
Statements in the 1996 Annual Report to Shareholders, incorporated herein by
reference, is not expected to have a material adverse effect on USF&G
Corporation's consolidated financial position, although it is possible that the
results of operations in a particular quarter or annual period would be
materially affected by an unfavorable outcome.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of 1996.
<PAGE>
USF&G CORPORATION Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market and dividend information for the Corporation's common stock on page 64 of
the 1996 Annual Report to Shareholders is incorporated herein by reference.
On December 24, 1996, USF&G Capital I, a subsidiary controlled by the
Corporation, completed the issuance of $100 million of 8 1/2% Capital
Securities, Series A (the "Capital Securities"). The Capital Securities were
offered by Goldman, Sachs & Co., Merrill Lynch & Co., Lehman Brothers and Legg
Mason Wood Walker, Incorporated (the "Initial Purchasers") to qualified
institutional buyers (as defined in Rule 144A under the Securities Act of 1933,
as amended (the "Securities Act")) in reliance on Rule 144A and to a limited
number of institutional investors that were accredited investors within the
meaning of Rule 501 (a) under the Securities Act. The offering and sale was
conducted without registration pursuant to exemption to the registration
requirements under the Securities Act, including Rule 144A and Regulation D. The
aggregate offering price was $100,000,000. The Corporation paid the Initial
Purchasers $1,000,000 as compensation for arranging the investment in the
Capital Securities and the related purchase by USF&G Capital I of Junior
Subordinated Debentures issued by USF&G. Refer to Note 6, "Capital Securities of
Subsidiary Trusts", of the Notes to Consolidated Financial Statements in the
Corporation's 1996 Annual Report to Shareholders incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data of the Corporation on pages 32 and 33 of the 1996 Annual
Report to Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis on pages 14 through 31 of the 1996 Annual
Report to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Corporation and notes to such
financial statements on pages 34 through 58 of the 1996 Annual Report to
Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
<PAGE>
USF&G CORPORATION Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Corporation's executive officers can be found on page
9 of this Form 10-K. Information regarding the Corporation's directors is
incorporated herein by reference to the Election of Directors section of the
Corporation's definitive proxy statement for its Annual Meeting of Shareholders
to be held May 21, 1997.
ITEM 11. EXECUTIVE COMPENSATION
See the Compensation of Executive Officers and Directors section of the
Corporation's definitive proxy statement for its Annual Meeting of Shareholders
to be held May 21, 1997, which section is incorporated herein by reference. To
the best of the Corporation's knowledge, there were no late filings under
Section 16(a) of the Securities Exchange Act of 1934.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the Stock Ownership of Certain Beneficial Owners, Directors and Management
section of the Corporation's definitive proxy statement for its Annual Meeting
of Shareholders to be held May 21, 1997, which section is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the Other Information-Certain Business Relationships section of the
Corporation's definitive proxy statement for its Annual Meeting of Shareholders
to be held May 21, 1997, which section is incorporated herein by reference.
<PAGE>
USF&G CORPORATION Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following consolidated financial statements of USF&G Corporation and
its subsidiaries, included in the Registrant's 1996 Annual Report to
Shareholders, are incorporated by reference in Item 8:
Consolidated Statement of Operations
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flows
Consolidated Statement of Shareholders' Equity
Notes to Consolidated Financial Statements
Report of Independent Auditors
(2) Schedules
The following consolidated financial statement schedules of USF&G
Corporation and its subsidiaries are included in Item 14:
Page 18 Schedule I. Summary of Investments--Other
than Investments in Related Parties
19-21 Schedule II. Condensed Financial Information of
Registrant
22 Schedule III. Supplementary Insurance
Information
23 Schedule IV. Reinsurance
24 Schedule VI. Supplemental Information
Concerning Consolidated
Property/Casualty Insurance
Operations
All other schedules specified by Article 7 of Regulation S-X are not
required pursuant to the related instructions or are inapplicable and,
therefore, have been omitted.
(3) Exhibits
The following exhibits are included in Item 14:
Page 25 Exhibit 11 Computation of Earnings Per Share
26 Exhibit 12 Computation of Ratio of
Consolidated Earnings to Fixed
Charges and Preferred Stock
Dividends
A copy of all other exhibits not included with this Form 10-K may be
obtained without charge upon written request to the corporate secretary at
the address shown on page 27 of this Form 10-K. Management contracts or
compensatory plans or arrangements required to be filed as an exhibit are
denoted with an asterisk.
Exhibit 3A
Charter of USF&G Corporation.
Exhibit 3B
Amended By-laws of USF&G Corporation.
Exhibit 4A
Amended and Restated Rights Agreement dated as of March 11, 1997 between USF&G
Corporation and The Bank Of New York. Incorporated by reference to the
Registrant's Form 8-K as filed on March 13, 1997, File No. 1-8233.
Exhibit 4B
Indenture dated January 28, 1994 between USF&G Corporation and Chemical Bank.
Incorporated by reference to Exhibit 4E to the Registrant's Form 10-K for the
year ended December 31, 1993, File No. 1-8233.
Exhibit 4C
Indenture dated January 28, 1994 between USF&G Corporation and Signet Bank.
Incorporated by reference to Exhibit 4D to the Registrant's Form 10-K for the
year ended December 31, 1994, File No. 1-8233.
Exhibit 4D
Form of Note dated March 3, 1994 for Zero Coupon Convertible Subordinated Notes
due 2009. Incorporated by reference to Exhibit 4 to the Registrant's Form 8-K
dated March 3, 1994, File No. 1-8233.
Exhibit 4E
Form of Note dated June 30, 1994 for 8 3/8% Senior Notes due 2001. Incorporated
by reference to Exhibit 4 to the Registrant's Form 8-K dated June 30, 1994, File
No. 1-8233.
Exhibit 4F
Credit and Reimbursement Agreement dated as of March 29, 1996 among USF&G
Corporation and Morgan Guaranty Trust Company of New York as agent. Incorporated
by reference to Exhibit 4A to the Registrant's Form 10-Q for the quarter ended
March 31, 1996, File No. 1-8233.
Exhibit 4G
Credit Agreement dated as of March 29, 1996 among USF&G Corporation and Deutsche
Bank AG, as agent. Incorporated by reference to Exhibit 4B to the Registrant's
Form 10-Q for the quarter ended March 31, 1996, File No. 1-8233.
Exhibit 4H
Letter of Credit Agreement dated as of October 25, 1994 among USF&G Corporation
and The Bank Of New York, as agent. Incorporated by reference to Exhibit 4I to
the Registrant's Form 10-K for the year ended December 31, 1994, File No.
1-8233.
Exhibit 4I
Form of 7% Senior Notes due 1998. Incorporated by reference to Exhibit 4A to the
Registrant's Form 10-Q for the quarter ended June 30, 1995, File No. 1-8233.
Exhibit 4J
Form of 7 1/8% Senior Notes due 2005. Incorporated by reference to Exhibit 4B to
the Registrant's Form 10-Q for the quarter ended June 30, 1995, File No. 1-8233.
Exhibit 4K
Documents related to USF&G Capital I:
Amended and Restated Trust Agreement dated as of December 24, 1996 among
USF&G Corporation, The Bank Of New York, The Bank Of New York (Delaware),
the Administrators and the Holders.
Junior Subordinated Indenture dated as of December 24, 1996 between USF&G
Corporation and The Bank Of New York.
Guarantee Agreement Between USF&G Corporation and The Bank Of New York dated
as of December 24, 1996.
Form of Global Certificate Evidencing Capital Securities of USF&G Capital I.
Agreement as to Expenses and Liabilities dated as of December 24, 1996
between USF&G Corporation and USF&G Capital I.
USF&G Corporation 8 1/2% Deferrable Interest Junior Subordinated Debenture,
$103,093,000.
Exhibit 4L
Documents related to USF&G Capital II:
Amended and Restated Trust Agreement dated as of January 10, 1997 among
USF&G Corporation, The Bank Of New York, The Bank of New York (Delaware),
the Administrators and the Holders.
Indenture dated as of January 10, 1997 between USF&G Corporation and The
Bank Of New York.
Guarantee Agreement dated as of January 10, 1997 by USF&G Corporation and
The Bank Of New York.
Form of Global Certificate Evidencing Capital Securities of USF&G
Capital II.
Agreement as to Expenses and Liabilities dated as of January 10, 1997
between USF&G Corporation and USF&G Capital II.
USF&G Corporation 8.47% Deferrable Interest Junior Subordinated Debenture,
$103,093,000.
Exhibit 10A*
Stock Option Plan of 1987. Incorporated by reference to Exhibit 4.1 to the
Registrant's Form S-8 dated July 28, 1987, File No. 33-16111.
Exhibit 10B*
Employment Agreement dated November 20, 1990 between the Registrant and
Norman P. Blake, Jr. Incorporated by reference to Exhibit 10A to the
Registrant's Form 10-K for the year ended December 31, 1990, File No. 1-8233.
Exhibit 10C*
USF&G Supplemental Executive Retirement Agreement between the Registrant and
Norman P. Blake, Jr., dated November 20, 1990. Incorporated by reference to
Exhibit 10B to the Registrant's Form 10-K for the year ended December 31, 1990,
File No. 1-8233.
Exhibit 10D*
Stock Option Plan of 1990. Incorporated by reference to Exhibit 4 to the
Registrant's Form S-8 Registration Statement as filed December 7, 1990, File No.
33-38113. Certified Copy of the Board Resolution adopted on December 6, 1990,
amending the Stock Option Plan of 1990. Incorporated by reference to Exhibit 10G
to the Registrant's Form 10-K for the year ended December 31, 1990, File No.
1-8233.
Exhibit 10E*
Description of Management Incentive Plan. Incorporated by reference to Exhibit
10J to the Registrant's Form 10-K for the year ended December 31, 1990,
File No. 1-8233.
Exhibit 10F*
Stock Incentive Plan of 1997.
Exhibit 10G*
Stock Incentive Plan of 1991. Incorporated by reference to Exhibit 4(a) to the
Registrant's Form S-8 Registration Statement as filed February 11, 1992,
File No. 33-45664.
Exhibit 10H*
Form of Stock Option Agreement used in connection with the Stock Option Plan of
1987, Stock Option Plan of 1990, and Stock Incentive Plan of 1991. Incorporated
by reference to Exhibit 10I to the Registrant's Form 10-K for the year ended
December 31, 1993, File No. 1-8233.
Exhibit 10I*
Amended and Restated 1993 Stock Plan for Non-Employee Directors.
Exhibit 10J*
Employment Agreement dated November 10, 1993 between the Registrant and
Norman P. Blake, Jr. Incorporated by reference to Exhibit 10K to the
Registrant's Form 10-K for the year ended December 31, 1993, File No. 1-8233.
Exhibit 10K*
Stock Option Agreement dated November 10, 1993 between the Registrant and
Norman P. Blake, Jr. Incorporated by reference to Exhibit 10L to the
Registrant's Form 10-K for the year ended December 31, 1993, File No. 1-8233.
Exhibit 10L*
Stock Option Agreement dated November 10, 1993 between the Registrant and
Norman P. Blake, Jr. Incorporated by reference to Exhibit 10M to the
Registrant's Form 10-K for the year ended December 31, 1993, File No. 1-8233.
Exhibit 10M*
Waiver dated November 10, 1993 between the Registrant and Norman P. Blake, Jr.
Incorporated by reference to Exhibit 10N to the Registrant's Form 10-K for the
year ended December 31, 1993, File No. 1-8233.
Exhibit 10N*
First Amendment to USF&G Supplemental Executive Retirement Agreement between
the Registrant and Norman P. Blake, Jr. dated November 10, 1993. Incorporated
by reference to Exhibit 10O to the Registrant's Form 10-K for the year ended
December 31, 1993, File No. 1-8233.
Exhibit 10O*
USF&G Supplemental Retirement Plan. Incorporated by reference to Exhibit 10Q to
the Registrant's Form 10-K for the year ended December 31, 1993,
File No. 1-8233.
Exhibit 10P*
Amended and Restated Stock Incentive Plan of 1991. Incorporated by reference to
Exhibit 10R to the Registrant's Form 10-K for the year ended December 31, 1994,
File No. 1-8233.
Exhibit 10Q*
Long-Term Incentive Plan. Incorporated by reference to Exhibit 10S to the
Registrant's Form 10-K for the year ended December 31, 1994, File No. 1-8233.
Exhibit 10R*
USF&G Executive Deferred Bonus Payment Plan. Incorporated by reference to
Exhibit 10T to the Registrant's Form 10-K for the year ended December 31, 1995,
File No. 1-8233.
Exhibit 10S*
Unfunded Deferred Compensation Plan for Non-Employee Directors of USF&G
Corporation. Incorporated by reference to Exhibit 10U to the Registrant's
Form 10-K for the year ended December 31, 1994, File No. 1-8233.
Exhibit 10T*
Description of Executive Severance Plan in the Event of a Change in Control.
Exhibit 10U
Coinsurance Contract dated as of July 26, 1996 among Fidelity and Guaranty Life
Insurance Company and Keyport Life Insurance Company.
Exhibit 11
Computation of earnings per share.
Exhibit 12
Computation of ratio of consolidated earnings to fixed charges and preferred
stock dividends.
Exhibit 13
1996 Annual Report to Shareholders.
Exhibit 21
Subsidiaries of the Registrant.
Exhibit 23
Consent of Independent Auditors.
Exhibit 28
Information from reports furnished to state insurance regulatory authorities.
All other exhibits specified by Item 601 of Regulation S-K are not required
pursuant to the related instructions or are inapplicable and, therefore, have
been omitted.
(b) Reports on Form 8-K
The Registrant filed a Form 8-K on November 20, 1996, reporting under Item 5,
Other Events, the call for redemption of all remaining outstanding shares of its
$10.25 Series B Cumulative Convertible Preferred Stock.
The Registrant filed a Form 8-K on December 3, 1996, reporting under Item 5,
Other Events, the Corporation's acquisition of Afianzadora Insurgentes, S.A. de
C.V., for $65 million.
<PAGE>
USF&G CORPORATION Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
USF&G CORPORATION
/s/NORMAN P. BLAKE, JR.
Norman P. Blake, Jr.
Chairman of the Board, President,
and Chief Executive Officer
Dated at Baltimore, Maryland
March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Principal Executive Officer:
/s/NORMAN P. BLAKE, JR.
Norman P. Blake, Jr.
Chairman of the Board, President, and
Chief Executive Officer
Chief Financial Officer:
/s/DAN L. HALE
Dan L. Hale
Executive Vice President and
Chief Financial Officer
Dated at Baltimore, Maryland
March 31, 1997
<PAGE>
USF&G CORPORATION Signatures
Directors
/s/H. FURLONG BALDWIN
H. Furlong Baldwin
/s/MICHAEL J. BIRCK
Michael J. Birck
/s/GEORGE L. BUNTING, JR.
George L. Bunting, Jr.
/s/ROBERT E. DAVIS
Robert E. Davis
/s/KENNETH M. DUBERSTEIN
Kenneth M. Duberstein
/s/DALE F. FREY
Dale F. Frey
/s/ROBERT E. GREGORY, JR.
Robert E. Gregory, Jr.
/s/ROBERT J. HURST
Robert J. Hurst
/s/WILBUR G. LEWELLEN
Wilbur G. Lewellen
/s/HENRY A. ROSENBERG, JR.
Henry A. Rosenberg, Jr.
/s/LARRY P. SCRIGGINS
Larry P. Scriggins
/s/ANNE MARIE WHITTEMORE
Anne Marie Whittemore
/s/R. JAMES WOOLSEY
R. James Woolsey
<PAGE>
USF&G CORPORATION Schedule I. Summary of Investments-Other Than Investments
in Related Parties
At December 31, 1996
Amount at which shown
Market in the Statement of
(in millions) Cost Value Financial Position
---------------------------------------
Fixed Maturities:
Available for sale:
United States Government agencies
and authorities $1,767 $1,791 $ 1,791
States, municipalities and
political subdivisions 425 430 430
Foreign governments 230 234 234
Public utilities 359 360 360
All other corporate bonds 5,285 5,349 5,349
---------------------------------------
Total fixed maturities
available for sale 8,066 8,164 8,164
---------------------------------------
Total fixed maturities 8,066 8,164 8,164
---------------------------------------
Equity Securities:
Common stocks:
Banks, trust and insurance
companies 1 1 1
Industrial, miscellaneous and
all other 14 14 14
---------------------------------------
Total common stocks 15 15 15
Nonredeemable preferred stocks 1 1 1
---------------------------------------
Total equity securities 16 16 16
---------------------------------------
Short-term investments 535 535 535
Mortgage Loans 406 423 406
Real estate acquired in satisfaction
of debt (A) 286 286
Other real estate (A) 268 268
Other invested assets (A) 401 401
---------------------------------------
Total investments $9,978 $10,076
---------------------------------------
(A) Market value not readily available.
<PAGE>
USF&G CORPORATION Schedule II. Condensed Financial Information of Registrant -
Statement of Financial Position (Parent Company)
At December 31
(in millions) 1996 1995 1994
-------------------------
Assets
Cash $ -- $ -- $ 1
Short-term investments 4 -- --
Investment in subsidiaries, at equity 3,021 3,130 2,503
Due from subsidiaries 99 57 131
Other assets 8 13 24
-------------------------
Total assets $3,132 $3,200 $2,659
-------------------------
Liabilities
Debt (short-term, 1996, $--;1995, $80; 1994, $215) $ 477 $ 591 $ 586
Dividends payable to shareholders 10 11 14
Due to insurance subsidiaries 36 136 203
Due to noninsurance subsidiaries 386 107 107
Other liabilities 154 371 308
-------------------------
Total liabilities 1,063 1,216 1,218
-------------------------
USF&G-obligated mandatorily redeemable capital
securities of subsidiary trust holding solely junior
subordinate deferrable interest debentures of USF&G 100 -- --
-------------------------
Shareholders' Equity
Preferred stock 200 213 331
Common stock 286 299 262
Paid-in capital 1,091 1,188 1,104
Net unrealized gains (losses) on investments
and foreign currency 62 271 (147)
Minimum pension liability -- (100) (63)
Retained earnings (deficit) 330 113 (46)
-------------------------
Total shareholders' equity 1,969 1,984 1,441
-------------------------
Total liabilities, capital securities
and shareholders' equity $3,132 $3,200 $2,659
-------------------------
See Note to Condensed Financial Statements.
<PAGE>
USF&G CORPORATION Schedule II. Condensed Financial Information of Registrant -
Statement of Operations (Parent Company)
At December 31
(in millions) 1996 1995 1994
------------------------
Revenues
Net investment income:
Dividends from subsidiaries $282 $114 $125
Interest expense on loans from subsidiaries (11) (12) (8)
Other (1) (3) (1)
Other revenues:
From subsidiaries 6 7 7
From others -- 1 5
------------------------
Revenues before net realized losses 276 107 128
Net realized losses on investments (3) (4) --
------------------------
Total revenues 273 103 128
------------------------
Expenses
Facilities exit costs/(sublease income) (69) (6) 211
Interest expense 38 42 34
Lease expense 18 21 30
Other operating expense 9 15 24
Foreign currency losses -- 1 --
------------------------
Total expenses (4) 73 299
------------------------
Income (loss) from operations before income taxes
and equity in undistributed earnings
of subsidiaries 277 30 (171)
Provision for income taxes (benefit) (3) (15) --
------------------------
Income (loss) from operations before equity in
undistributed earnings of subsidiaries 280 45 (171)
Equity in undistributed earnings of subsidiaries (19) 164 408
------------------------
Net income $261 $209 $237
------------------------
See Note to Condensed Financial Statements.
<PAGE>
USF&G CORPORATION Schedule II. Condensed Financial Information of Registrant -
Statement of Cash Flows (Parent Company)
At December 31
(in millions) 1996 1995 1994
------------------------
Net Cash Provided from Operating Activities $ 227 $ 40 $129
------------------------
Net Cash Used in Investing Activities (4) 2 (4)
------------------------
Financing Activities
Repayments of short-term borrowings -- (215) (160)
Intercompany advances, net (21) 21 (51)
Long-term borrowings -- 228 270
Repayments of long-term borrowings (114) (30) (120)
Issuance of capital securities 98 -- --
Issuances of common stock 11 6 14
Repurchases of common stock (150) -- --
Redemption of preferred stock (2) -- (13)
Cash dividends paid to shareholders (45) (53) (66)
-----------------------
Net cash used in financing activities (223) (43) (126)
-----------------------
Decrease in cash -- (1) (1)
Cash at beginning of year -- 1 2
-----------------------
Cash at end of year $ -- $ -- $ 1
-----------------------
See Note to Condensed Financial Statements.
Note to Condensed Financial Statements
The accompanying condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of the 1996 Annual
Report to Shareholders incorporated herein by reference. Certain amounts have
been reclassified to conform to the 1996 presentation. The parent company's
provision for income taxes is based on the Corporation's consolidated federal
income tax allocation policy.
Effective June 1, 1995, USF&G Company declared an extraordinary dividend payable
to USF&G Corporation for the amount of its equity in the undistributed earnings
of F&G Life. This dividend is excluded from "Dividends from Subsidiaries" in the
condensed statement of operations since the transaction represented a change in
ownership structure rather than a distribution of earnings from a subsidiary.
<PAGE>
USF&G CORPORATION Schedule III. Supplementary Insurance Information
<TABLE>
<CAPTION>
At December 31 Years Ended December 31
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Deferred Unpaid losses, Other Net Losses,loss Amortization
policy loss expenses policy- investment expenses of deferred Other
acquisition and policy Unearned holder Premium income and policy policy acqui- operating Premiums
(in millions) costs benefits premiums funds(A) revenue (A) benefits sition costs expenses written
----------------------------------------- -------------------------------------------------------------
1996
Property/casualty insurance:
CIG $105 $2,508 $ 354 $ 954 $ 708 $ 249 $100 $ 964
FBIG 122 1,526 436 990 782 265 120 989
Surety 40 79 100 141 55 63 19 160
Discover Re 2 61 72 22 17 2 2 27
F&G Re 21 871 82 480 306 120 2 499
Reinsurance receivable -- 987 69 -- -- -- -- --
----------------------------------------- -------------------------------------------------------------
Property/casualty 290 6,032 1,113 $12 2,586 $441 1,868 699 243 2,639
Life insurance 166 3,552 -- 79 145 269 313 8 43 N/A
----------------------------------------- -------------------------------------------------------------
Total $456 $9,584 $1,113 $91 $2,731 $710 $2,181 $707 $286 $2,639
----------------------------------------- -------------------------------------------------------------
1995
Property/casualty insurance:
CIG (B) $122 $2,531 $ 382 $ 876 $ 662 $252 $ 71 $ 921
FBIG (B) 122 1,680 404 982 732 268 126 974
Surety 30 44 61 119 44 53 9 129
Discover Re 2 50 36 25 20 4 5 27
F&G Re 12 808 57 490 344 107 5 512
Reinsurance receivable -- 984 115 -- -- -- -- --
----------------------------------------- -------------------------------------------------------------
Property/casualty 288 6,097 1,055 $ 9 2,492 $438 1,802 684 216 2,563
Life insurance 146 3,719 -- 80 174 306 376 30 41 N/A
----------------------------------------- -------------------------------------------------------------
Total $434 $9,816 $1,055 $89 $2,666 $744 $2,178 $714 $257 $2,563
----------------------------------------- -------------------------------------------------------------
1994
Property/casualty insurance:
Commercial $167 $3,903 $ 468 $1,206 $ 934 $366 $ 88 $1,220
Personal 77 496 275 626 463 165 64 614
Surety 24 41 52 107 41 48 14 113
Discover Re 3 34 15 22 17 1 8 27
F&G Re 9 668 41 395 289 67 27 415
Reinsurance receivable -- 1,016 117 -- -- -- -- --
----------------------------------------- -------------------------------------------------------------
Property/casualty 280 6,158 968 $ 7 2,356 $429 1,744 647 201 2,389
Life insurance 224 3,804 -- 79 152 317 388 21 45 N/A
----------------------------------------- -------------------------------------------------------------
Total $504 $9,962 $ 968 $86 $2,508 $746 $2,132 $668 $246 $2,389
----------------------------------------- -------------------------------------------------------------
(A) Other policyholders' funds and net investment income are not allocated to property/casualty categories.
(B) Prior to the creation of CIG and FBIG in 1995, information regarding insurance operations were segregated along product lines
for commercial and personal property/casualty insurance. Comparative amounts for 1995 were as follows:
Commercial $172 $3,732 $ 520 $1,223 $ 910 $353 $117 $1,272
Personal 72 479 266 635 484 167 80 623
----------------------------------------- -------------------------------------------------------------
N/A - Not applicable to life insurance pursuant to Rule 12-16 of Regulation S-X.
</TABLE>
<PAGE>
USF&G CORPORATION Schedule IV. Reinsurance
<TABLE>
<CAPTION>
Years Ended December 31
<S> <C> <C> <C> <C> <C>
Ceded to Assumed Percentage of
Gross other from other Net assumed amount
(in millions) amount companies companies amount assumed to net*
----------------------------------------------------------------
1996
Life insurance in force $10,580 $1,220 $149 $ 9,509 1.6%
----------------------------------------------------------------
Premiums earned:
Life insurance $ 153 $ 9 $ -- $ 144 .3%
Accident/health insurance -- -- 1 1 102.1
Property/casualty insurance 2,346 369 609 2,586 23.5
----------------------------------------------------------------
Total $ 2,499 $ 378 $610 $ 2,731 22.3%
----------------------------------------------------------------
1995
Life insurance in force $11,237 $1,305 $154 $10,086 1.5%
----------------------------------------------------------------
Premiums earned:
Life insurance $ 178 $ 5 $ -- $ 173 .2%
Accident/health insurance -- -- 1 1 98.4
Property/casualty insurance 2,253 398 637 2,492 25.6
----------------------------------------------------------------
Total $ 2,431 $ 403 $638 $ 2,666 23.9%
----------------------------------------------------------------
1994
Life insurance in force $11,683 $1,350 $160 $10,493 1.5%
----------------------------------------------------------------
Premiums earned:
Life insurance $ 155 $ 4 $ -- $ 151 --%
Accident/health insurance -- -- 1 1 98.5
Property/casualty insurance 2,284 516 588 2,356 25.0
----------------------------------------------------------------
Total $ 2,439 $ 520 $589 $ 2,508 23.5%
----------------------------------------------------------------
*Certain percentages are calculated from amounts in thousands and may not equal the percentage
calculated from amounts reported in millions.
</TABLE>
<PAGE>
USF&G CORPORATION Schedule VI. Supplemental Information Concerning Consolidated
Property/Casualty Insurance Operations
At December 31
(in millions) 1996 1995 1994
------------------------
Deferred policy acquisition costs $ 290 $ 288 $ 280
Reserves for unpaid losses and loss expenses 6,032 6,097 6,158
Discount deducted from reserves (A) 353 394 441
Unearned premiums 1,113 1,055 968
------------------------
Years Ended December 31
(in millions) 1996 1995 1994
------------------------
Earned premiums $2,586 $2,492 $2,356
Net investment income 441 438 429
Losses and loss expenses incurred related to:
Current year 2,030 1,856 1,752
Prior years (162) (54) (8)
Amoritization of deferred policy acquisition costs 699 684 647
Paid losses and loss expenses 1,954 1,831 1,918
Premiums written 2,639 2,563 2,389
------------------------
(A) Certain long-term disability payments for workers' compensation are
discounted at rates of up to 4%.
<PAGE>
USF&G CORPORATION Exhibit 11 - Computation of Earnings Per Share
<TABLE>
<CAPTION>
Years Ended December 31
<S> <C> <C> <C>
(dollars in millions except per share) 1996 1995 1994
------------------------------------------
Net Income Available to Common Stock
Primary:
Net income $261 $209 $237
Less preferred stock dividend requirements (20) (28) (46)
------------------------------------------
Net income available to common stock $241 $181 $191
------------------------------------------
Fully diluted:
Net Income $261 $209 $237
Less preferred stock dividend requirements (16) (16) (16)
Add interest expense on zero coupon bonds 5 6 5
------------------------------------------
Net income available to common stock $250 $199 $226
------------------------------------------
Weighted-Average Shares Outstanding
Primary common shares (A) 117,674,384 111,474,129 95,796,671
------------------------------------------
Fully diluted (B):
Common shares 117,674,384 111,474,129 95,796,671
Common stock equivalents 3,880,400 1,553,773 1,038,214
Assumed conversion of preferred stock 2,150,892 9,931,329 24,950,202
Assumed conversion of zero coupon bonds 5,784,211 7,227,255 6,022,712
------------------------------------------
Total fully diluted 129,489,887 130,186,486 127,807,799
------------------------------------------
Earnings Per Common Share
Primary (A) $2.05 $1.63 $2.00
Fully diluted (B) 1.93 1.53 1.77
------------------------------------------
(A) Shares issuable under common stock equivalents (2,416,755 shares in 1996;
1,295,767 shares in 1995; 1,021,230 shares in 1994) have not been used in the
computation of primary earnings per common share presented on the face of the
Consolidated Statement of Operations because the dilutive effect is not
material.
(B) Fully diluted earnings per common share amounts are calculated assuming the
conversion of all securities whose contingent issuance would have a dilutive
effect on earnings.
</TABLE>
<PAGE>
USF&G CORPORATION Exhibit 12 - Computation of Ratio of Consolidated Earnings to
Fixed Charges and Preferred Stock Dividends
Years Ended December 31
(dollars in millions) 1996 1995 1994
------------------------
Fixed charges
Interest expense $ 39 $ 44 $ 37
Portion of rents representative of interest (A) 17 20 159
------------------------
Total fixed charges 56 64 196
Preferred stock dividend requirements (B) 20 28 46
------------------------
Combined Fixed Charges and Preferred Stock Dividends $ 76 $ 92 $242
------------------------
Consolidated Earnings Available for Fixed Charges
and Preferred Stock Dividends
Income (loss) from operations before income taxes $259 $195 $(43)
Adjustment:
Fixed charges 56 64 196
------------------------
Consolidated earnings available for fixed charges
and preferred stock dividends $315 $259 $153
------------------------
Ratio of Consolidated Earnings to Fixed Charges (C)(D) 5.7 4.0 0.8
Ratio of Consolidated Earnings to Combined Fixed Charges
and Preferred Stock Dividends (C)(D) 4.1 2.8 0.6
------------------------
(A) Includes approximately $130 million net present value of rents
representative of interest included in facilities exit costs in 1994.
(B) Preferred stock dividend requirements of $20 million, $28 million and $46
million in 1996, 1995 and 1994, respectively, divided by 100% less the
effective income tax rate of 0% in 1996, 1995 and 1994.
(C) The ratio of consolidated earnings before facilities exit costs to fixed
charges was 3.1 for 1994. The ratio of consolidated earnings before facilities
exit costs to combined fixed charges and preferred stock dividends was 1.8 for
1994.
(D) In 1994, earnings were inadequate to cover fixed charges by $43 million
and combined fixed charges and preferred stock dividends by $89 million.
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS TO ANNUAL REPORT ON FORM 10-K
USF&G CORPORATION
For the Fiscal Year Ended Commission File Number
December 31, 1996 1-8233
A copy of all other of the Corporation's Exhibits to the 1996
Form 10-K report not included herein may be obtained without charge upon
written request to John F. Hoffen, Jr., corporate secretary,
at the corporate headquarters:
6225 Smith Avenue
Baltimore, Maryland 21209
ARTICLES OF INCORPORATION
OF
USF&G CORPORATION
USF&G CORPORATION
ARTICLES OF INCORPORATION
FIRST: THE UNDERSIGNED, Elver T. Pearson, whose address is 100 Light Street,
Baltimore, Maryland 21202, being at least eighteen years of age, acting as
incorporator, does hereby form a corporation under the General Laws of the State
of Maryland.
SECOND: The name of the corporation (which is hereinafter called the
"Corporation") is:
USF&G CORPORATION
THIRD: The purposes for which and any of which the Corporation is formed and
the business and objects to be carried on and promoted by it are:
(1) To purchase, own, and hold the stock of other corporations, and to do
every act and thing covered generally by the denomination "holding company";
(2) To purchase, subscribe for, acquire, own, hold, sell, exchange, assign,
transfer, create security interests in, pledge, or otherwise dispose of shares,
or voting trust certificates for shares, of the capital stock of, or any bonds,
notes, securities, or evidences of indebtedness created by, any other
corporation or corporations organized under the laws of this state or any other
state or district, county, nation or government; and
(3) To engage in any one or more businesses or transactions, or to acquire
all or any portion of any entity engaged in any one or more businesses or
transactions which the Board of Directors may from time to time authorize or
approve, whether or not related to the business described elsewhere in this
Article or to any other business at the time or theretofore engaged in by the
Corporation.
The foregoing enumerated purposes and objects shall be in no way limited or
restricted by reference to, or inference from, the terms of any other clause of
this or any other Article of the charter of the Corporation, and each shall be
regarded as independent; and they are intended to be and shall be construed as
powers as well as purposes and objects of the Corporation and shall be in
addition to and not in limitation of the general powers of corporations under
the General Laws of the State of Maryland.
FOURTH: The present address of the principal office of the Corporation in
this state is 100 Light Street, Baltimore, Maryland 21202.
FIFTH: The name and address of the resident agent of the Corporation in this
state are John A. MacColl, 100 Light Street, Baltimore, Maryland 21202.
Said resident agent is a citizen of the State of Maryland who resides there.
SIXTH: The total number of shares of stock of all classes which the
Corporation has authority to issue is 252,000,000 having an aggregate par value
of $1,200,000,000 of which 240,000,000 shares of the par value of $2.50 per
share, amounting in aggregate par value to $600,000,000, shall be Common Stock,
and 12,000,000 shares of the par value of $50.00 per share, amounting in
aggregate par value to $600,000,000, shall be Preferred Stock.
SEVENTH: The following is a description of the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the Common Stock and
the Preferred Stock of the Corporation:
COMMON STOCK
(1) The Common Stock shall not be subject to classification or
reclassification by the Board of Directors, and shall have the rights and terms
hereinafter specified, subject to the terms of any other stock provided in the
charter pursuant to classification or reclassification by the Board of Directors
or otherwise in accordance with law.
(2) Each share of Common Stock shall have one vote, and, except as otherwise
provided in respect of any Preferred Stock, the exclusive voting power for all
purposes shall be vested in the holders of the Common Stock.
(3) Subject to the provisions of law and any preferences of any Preferred
Stock, dividends may be paid on the Common Stock of the Corporation at such time
and in such amounts as the Board of Directors may deem advisable.
(4) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Common Stock
shall be entitled, after payment or provision for payment of the debts and other
liabilities of the Corporation and the amount to which the holders of any
Preferred Stock shall be entitled, to share ratably in the remaining net assets
of the Corporation.
PREFERRED STOCK
(5) The Board of Directors shall have authority to classify and reclassify
any unissued shares of the Preferred stock from time to time by setting or
changing in any one or more respects the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, and
qualifications, or terms or conditions of redemption, of the Preferred Stock;
provided, that the Board of Directors shall not classify or reclassify any of
such shares into shares of the Common Stock, or into any class or series of
stock (i) which is not prior to the Common Stock either as to dividends or upon
liquidation and (ii) which is not limited in some respects either as to
dividends or upon liquidation. Subject to the foregoing, the power of the Board
of Directors to classify and reclassify any of the shares of Preferred Stock
shall include, without limitation, subject to the provisions of the charter,
authority to classify or reclassify any unissued shares of such stock into a
class or classes of preferred stock, preference stock, special stock or other
stock, and to divide and classify shares of any class into one or more series of
such class, by determining, fixing or altering one or more of the following:
(a) The distinctive designation of such class or series and the number
of shares to constitute such class or series; provided that, unless otherwise
prohibited by the terms of such or any other class or series, the number of
shares of any class or series may be decreased by the Board of Directors in
connection with any classification or reclassification of unissued shares and
the number of shares of such class or series may be increased by the Board of
Directors in connection with any such classification or reclassification, and
any shares of any class or series which have been redeemed, purchased, otherwise
acquired or converted into shares of Common Stock or any other class or series
shall remain part of the authorized Preferred Stock and be subject to
classification and reclassification as provided in this Section.
(b) Whether or not and, if so, the rates, amounts and times at which,
and the conditions under which, dividends shall be payable on shares of such
class or series, whether any such dividends shall rank senior or junior to or on
a parity with the dividends payable on any other class or series of Preferred
Stock, and the status of any such dividends as cumulative, cumulative to a
limited extent, or non-cumulative and as participating or non-participating.
(c) Whether or not shares of such class or series shall have voting
rights, in addition to any voting rights provided by law and, if so, the terms
of such voting rights.
(d) Whether or not shares of such class or series shall have conversion
or exchange privileges and, if so, the terms and conditions thereof, including
provision for adjustment of the conversion or exchange rate in such events or at
such times as the Board of Directors shall determine.
(e) Whether or not shares of such class or series shall be subject to
redemption and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates; and whether or not there shall be
any sinking fund or purchase account in respect thereof, and if so, the terms
thereof.
(f) The rights of the holders of shares of such class or series upon
the liquidation, dissolution or winding up of the affairs of, or upon any
distribution of the assets of, the Corporation, which rights may vary depending
upon whether such liquidation, dissolution or winding up is voluntary or
involuntary and, if voluntary, may vary at different dates, and whether such
rights shall rank senior or junior to or on a parity with such rights of any
other class of series of Preferred Stock.
(g) Whether or not there shall be any limitations applicable, while
shares of such class or series are outstanding, upon the payment of dividends or
making of distributions on, or the acquisition of, or the use of moneys for
purchase or redemption of, any stock of the Corporation, or upon any other
action of the Corporation, including action under this Section, and, if so, the
terms and conditions thereof.
(h) Any other preferences, rights, restrictions, including restrictions
on transferability, and qualification of shares of such class or series, not
inconsistent with law and the charter of the Corporation.
(6) For the purposes hereof and of any articles supplementary to the charter
providing for the classification or reclassification of any shares of Preferred
Stock or of any other charter document of the Corporation (unless otherwise
provided in any such articles or documents), any class or series of stock of the
Corporation shall be deemed to rank: (a) prior to another class or series either
as to dividends or upon liquidation, if the holders of such class or series
shall be entitled to the receipt of dividends or of amounts distributable on
liquidation, dissolution or winding up, as the case may be, in preference or
priority to holders of such other class or series; (b) on a parity with another
class or series either as to dividends or upon liquidation, whether or not the
dividend rates, dividend payment dates, or redemption or liquidation price per
share thereof be different from those of such others, if the holders of such
class or series of stock shall be entitled to receipt of dividends or amounts
distributable upon liquidation, dissolution or winding up, as the case may be,
in proportion to their respective dividend rates or redemption or liquidation
prices, without preferences or priority over the holders of such other class or
series; and (c) junior to another class or series either as to dividends or upon
liquidation, if the rights of the holders of such class or series shall be
subject or subordinate to the rights of the holders of such other class or
series in respect of the receipt of dividends or the amounts distributable upon
liquidation, dissolution or winding up, as the case may be.
EIGHTH: The number of directors of the Corporation shall be three (3), which
number may be increased or decreased pursuant to the By-Laws of the Corporation,
but shall never be less than the minimum number permitted by the General Laws of
the State of Maryland now or hereafter in force. The names of the directors who
will serve until the first annual meeting and until their successors are elected
and qualify are as follows: Charles H. Foelber, Jack Moseley and Larry P.
Scriggins.
NINTH: The following provisions are hereby adopted for the purpose of
defining, limiting, and regulating the powers of the Corporation and of the
directors and stockholders:
(1) The Board of Directors is hereby empowered to authorize the issuance from
time to time of shares of its stock of any class, whether now or hereafter
authorized, or securities convertible into shares of its stock of any class or
classes, whether now or hereafter authorized, for such consideration as may be
deemed advisable by the Board of Directors and without any action by the
stockholders.
(2) No holder of any stock or any other securities of the Corporation,
whether now or hereafter authorized, shall have any preemptive right to
subscribe for or purchase any stock or any other securities of the Corporation
other than such, if any, as the Board of Directors, in its sole discretion, may
determine and at such price or prices and upon such other terms as the Board of
Directors, in its sole discretion, may fix; and any stock or other securities
which the Board of Directors may determine to offer for subscription may, as the
Board of Directors in its sole discretion shall determine, be offered to the
holders of any class, series or type of stock or other securities at the time
outstanding to the exclusion of the holders of any or all other classes, series
or types of stock or other securities at the time outstanding.
(3) The Board of Directors shall have power from time to time and in its sole
discretion to determine in accordance with sound accounting practice, what
constitutes annual or other net profits, earnings, surplus, or net assets in
excess of capital; to fix and vary from time to time the amount to be reserved
as working capital, or determine that retained earnings or surplus shall remain
in the hands of the Corporation; to set apart out of any funds of the
Corporation such reserve or reserves in such amount or amounts and for such
proper purpose or purposes as it shall determine and to abolish any such reserve
or any part thereof; to distribute and pay distributions or dividends in stock,
cash or other securities or property, out of surplus or any other funds or
amounts legally available therefor, at such times and to the stockholders of
record on such dates as it may, from time to time, determine; and to determine
whether and to what extent and at what times and places and under what
conditions and regulations the books, accounts and documents of the Corporation,
or any of them shall be open to the inspection of stockholders, except as
otherwise provided by statute or by the By-Laws, and, except as so provided, no
stockholder shall have any right to inspect any book, account or document of the
Corporation unless authorized so to do by resolution of the Board of Directors.
(4) A contract or other transaction between the Corporation and any of its
directors or between the Corporation and any other corporation, firm or other
entity in which any of its directors is a director or has a material financial
interest is not void or voidable solely because of any one or more of the
following: the common directorship or interest; the presence of the director at
the meeting of the Board of Directors which authorizes, approves, or ratifies
the contract or transaction; or the counting of the vote of the director for the
authorization, approval, or ratification of the contract or transaction. This
Section applies if:
(a) the fact of the common directorship or interest is disclosed or
known to: the Board of Directors and the Board authorizes, approves, or ratifies
the contract or transaction by the affirmative vote of a majority of
disinterested directors, even if the disinterested directors constitute less
than a quorum; or the stockholders entitled to vote, and the contract or
transaction is authorized, approved, or ratified by a majority of the votes cast
by the stockholders entitled to vote other than the votes of shares owned of
record or beneficially by the interested director or corporation, firm, or other
entity; or
(b) the contract or transaction is fair and reasonable to the
Corporation.
Common or interested directors or the stock owned by them or by an
interested corporation, firm, or other entity may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or at a meeting of
the stockholders, as the case may be, at which the contract or transaction is
authorized, approved, or ratified. If a contract or transaction is not
authorized, approved, or ratified in one of the ways provided for in clause (a)
of the second sentence of this Section, the person asserting the validity of the
contract or transaction bears the burden of proving that the contract or
transaction was fair and reasonable to the Corporation at the time it was
authorized, approved, or ratified. The procedures in this Section do not apply
to the fixing by the Board of Directors of reasonable compensation for a
director, whether as a director or in any other capacity.
(5) The Corporation shall indemnify (a) its directors to the full extent
provided by the General Laws of the State of Maryland now or hereafter in force,
including the advance of expenses under the procedures provided by such laws;
(b) its officers to the same extent it shall indemnify its directors; and (c)
its officers who are not directors to such further extent as shall be authorized
by the Board of Directors and be consistent with law. The foregoing shall not
limit the authority of the Corporation to indemnify other employees and agents
consistent with law.
(6) The Corporation reserves the right from time to time to make any
amendments of its charter which may now or hereafter be authorized by law,
including any amendments changing the terms or contract rights, as expressly set
forth in its charter, of any of its outstanding stock by classification,
reclassification or otherwise; but no such amendment which changes such terms or
contract rights of any of its outstanding stock shall be valid unless such
amendment shall have been authorized by not less than a majority of the
aggregate number of the votes entitled to be cast thereon, by a vote at a
meeting or in writing with or without a meeting.
(7) To the fullest extent permitted by Maryland statutory or decisional law,
as amended or interpreted, no director or officer of this Corporation shall be
personally liable to the Corporation or its stockholders for money damages. No
amendment of the Charter of the Corporation or repeal of any of its provisions
shall limit or eliminate the benefits provided to directors and officers under
this provision with respect to any act or omission which occurred prior to such
amendment or repeal. The enumeration and definition of particular powers of the
Board of Directors included in the foregoing shall in no way be limited or
restricted by reference to or inference from the terms of any other clause of
this or any other Article of the charter of the Corporation, or construed as or
deemed by inference or otherwise in any manner to exclude or limit any powers
conferred upon the Board of Directors under the General Laws of the State of
Maryland now or hereafter in force.
TENTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation
acknowledging the same to be my act, on July 22,1981.
Witness:
/SAMUEL H. McCOY, II/ /ELVER T. PEARSON/
USF&G CORPORATION
ARTICLES OF AMENDMENT
USF&G CORPORATION, a Maryland corporation , having its principal office in
Baltimore City, Maryland (which is hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended as follows:
(a) By changing and reclassifying each one (1) share of Common Stock,
$2.50 par value, issued at the time of effectiveness of this Amendment into
two (2) shares of Common Stock, $2.50 par value; and
(b) by deleting Article SIXTH of the Articles of Incorporation in its
entirety and in lieu thereof substituting the following:
"SIXTH: The total number of shares of stock of all classes which
the Corporation has authority to issue is 132,000,000 shares having an aggregate
par value of $900,000,000, of which 120,000,000 shares of the par value of $2.50
per share, amounting in aggregate par value to $300,000,000, shall be Common
Stock, and 12,000,000 shares of the par value of $50.00 per share, amounting in
aggregate par value to $600,000,000, shall be Preferred Stock."
SECOND: (a) As of immediately before the amendment the total number of shares
of stock of all classes which the Corporation has authority to issue is
44,000,000 shares, of which 4,000,000 shares are Preferred Stock (par value
$50.00 per share) and 40,000,000 shares are Common Stock (par value $2.50 per
share).
(b) As amended the total number of shares of stock of all classes
which the Corporation has authority to issue is 132,000,000 shares, of which
12,000,000 shares are Preferred Stock (par value $50.00 per share) and
120,000,000 shares are Common Stock (par value $2.50 per share).
(c) The aggregate par value of all shares having a par value is
$300,000,000 before the amendment and $900,000,000 as amended.
(d) The descriptions of each class of stock of the Corporation
are not changed by the amendment.
THIRD: The foregoing amendment to the Charter of the Corporation has been
advised by the Board of Directors and approved by the stockholders of the
Corporation.
FOURTH: The foregoing amendment to the Charter of the Corporation shall be
effective as of 5:00 p.m., Baltimore Time, on May 14, 1984.
IN WITNESS WHEREOF, USF&G CORPORATION has caused these presents to be signed
in its name and on its behalf by its Chairman of the Board and President and
witnessed by its Secretary on May 14, 1984.
WITNESS: USF&G CORPORATION
By: /s/William F. Spliedt, /s/Jack Moseley,
Secretary Chairman of the Board and President
THE UNDERSIGNED, Chairman of the Board and President of USF&G CORPORATION,
who executed on behalf of the Corporation the foregoing Articles of Amendment of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles of Amendment to be the
corporate act of said Corporation and hereby certifies that to the best of his
knowledge, information, and belief the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
Jack Moseley,
Chairman of the Board and President
ARTICLES SUPPLEMENTARY
ARTICLES SUPPLEMENTARY
$4.10 SERIES A CONVERTIBLE EXCHANGEABLE
PREFERRED STOCK
OF
USF&G CORPORATION
USF&G CORPORATION, a Maryland corporation, having its principal office in
Baltimore City, Maryland (the "Corporation"), hereby certifies to the Maryland
State Department of Assessments and Taxation that:
FIRST: Pursuant to authority expressly vested in the Board of Directors of
the Corporation by Article Seventh of the Charter of the Corporation, the Board
of Directors has duly divided and classified 4,000,000 shares of the Preferred
Stock of the Corporation into a series designated $4.10 Series A Convertible
Exchangeable Preferred Stock and has provided for the issuance of such series.
SECOND: The terms of the $4.10 Series A Convertible Exchangeable Preferred
Stock are as follows:
(i) Designation and Amount. The designation of said series of the
Preferred Stock shall be "$4.10 Series A Convertible Exchangeable Preferred
Stock" (the "Series A"). The number of shares of Series A shall initially be
4,000,000, subject to increase or decrease by action of the Board of Directors
effectuated by further Articles Supplementary.
(ii) Dividends. Holders of shares of Series A will be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available therefor, dividends from the date of issue thereof at the annual rate
of $4.10 per share, payable quarterly, in arrears, on January 31, April 30, July
31 and October 31, (a "Dividend Payment Date") in each year, commencing on
October 31, 1986. Such dividends shall be cumulative with respect to each share
from the date of original issuance, whether or not earned or declared. The
holders of Series A will not be entitled to any dividends other than the cash
dividends described in this Clause (ii). Unless full cumulative dividends on all
outstanding shares of Series A or any other class of preferred stock ranking on
a parity with the Series A as to dividends and upon liquidation at the time such
dividends are payable ("Parity Stock") have been paid or are contemporaneously
declared and paid (or declared and a sum sufficient for the payment thereof is
set apart for such payment), the Corporation will not (a) declare or pay any
dividend on the Common Stock, $2.50 par value (the "Common Stock"), of the
Corporation or on any other class of stock ranking junior to the Series A as to
dividends and upon liquidation (the Common Stock and any such junior class being
the "Junior Stock") or make any payment on account of, or set apart money for, a
sinking or other analogous fund for, the purchase, redemption or other
retirement of, any Junior Stock or make any distribution in respect thereof,
either directly or indirectly and whether in cash or property or in obligations
or shares of the Corporation (other than in shares of Junior Stock) or (b)
purchase any shares of Series A or Parity Stock (except for consideration
payable in Junior Stock) or redeem fewer than all of the shares of Series A or
Parity Stock then outstanding. Unless and until all dividends accrued and
payable but unpaid on the Series A and any Parity Stock at the time outstanding
have been paid in full, all dividends declared by the Corporation upon such
Series A or Parity Stock shall be declared pro rata with respect to all Series A
and Parity Stock then outstanding, so that the amounts of any dividends declared
on the Series A and such Parity Stock shall in all cases bear to each other the
same ratio that, at the time of such declaration, all accrued and payable but
unpaid dividends on the Series A and such other Parity Stock, respectively, bear
to each other.
(iii) Optional Redemptions for Cash. Shares of Series A shall be
redeemable at the option of the Corporation at any time on or after
October 31, 1989 at the following redemption prices per share, if redeemed
during the 12-month period beginning October 31 in each of the following years:
Redemption
Year Price
1989 $52.87
1990 52.46
1991 52.05
1992 51.64
1993 51.23
1994 50.82
1995 50.41
and on or after October 31, 1996 at $50 per share, plus, in each case, any
accrued and unpaid dividends thereon.
The Corporation may not purchase or redeem less than all the Series A and
Parity Stock then outstanding if, as of such time, the Corporation has failed to
pay all accrued and unpaid dividends thereon, whether or not earned or declared.
The Corporation will mail notice of redemption to each holder of record of
Series A to be redeemed no less than 20 nor more than 60 days prior to the
redemption date. Such notice shall specify the time and place of such
redemption, the number of shares to be redeemed and the Conversion Price as
defined in Clause (vi) below, the date on which the right to convert the Series
A to be redeemed will terminate and the place or places where such Series A may
be surrendered for conversion. Such notice shall be given by first class mail,
postage prepaid, to the holders of record of the shares of Series A to be
redeemed at their respective addresses as the same shall appear on the books of
the Corporation, but neither failure to mail such notice, nor any defect therein
or in the mailing thereof, to any particular holder shall affect the sufficiency
of the notice or the validity of the proceedings for redemption with respect to
the other holders. Any notice which was mailed in the manner herein provided
shall be conclusively presumed to have been duly given whether or not the holder
receives the notice. If fewer than all of the shares of Series A are to be
redeemed, the shares to be redeemed shall be selected by lot or pro rata or in
some other equitable manner determined by the Corporation.
If a notice of redemption has been given pursuant to this Clause (iii) and if,
on or before the date fixed for redemption, the funds necessary for such
redemption shall have been set aside by the Corporation, separate and apart from
its other funds, in trust for the pro rata benefit of the holders of the shares
so called for redemption, then on and after the redemption date, notwithstanding
that any certificates for such shares have not been surrendered for
cancellation, dividends shall cease to accrue on the shares of Series A to be
redeemed, such shares shall no longer be deemed to be outstanding and all rights
of the holders of such shares as stockholders of the Corporation shall cease
except the right to receive the moneys payable upon such redemption, without
interest, upon surrender of the certificates evidencing such shares.
(iv) Optional Redemption Through Debenture Exchange.
(A) Shares of Series A shall be redeemable at the option of the
Corporation, in whole but not in part, on any Dividend Payment Date beginning
October 31, 1989, to and including October 31, 2011, through the issuance of the
Corporation's 8.2% Convertible Subordinated Debentures due October 31, 2011
(hereinafter referred to as the "Debentures") in redemption of and in exchange
for the shares of Series A, in the manner provided in this Clause (iv).
(B) Holders of Series A will be entitled to receive $50 principal
amount of the Debentures for each share of Series A held by them on the Exchange
Date (as hereinafter defined).
(C) The Corporation will mail notice of its intention to redeem
through such an exchange to each holder of record of the shares of Series A no
less than 20 nor more than 60 days prior to the redemption date. Such notice
shall be given by first class mail, postage prepaid to the holders of record of
shares of Series A at their respective addresses as the same shall appear on the
books of the Corporation, specifying the effective date of the exchange (the
"Exchange Date") and the place where certificates for shares of Series A are to
be surrendered for Debentures and stating that dividends on shares of Series A
will cease to accrue on the Exchange Date, but neither failure to mail such
notice, nor any defect therein or in the mailing thereof, to any particular
holder shall affect the sufficiency of the notice or the validity of the
proceedings for redemption and exchange with respect to the other holders. Any
notice which was mailed in the manner herein provided shall be conclusively
presumed to have been duly given whether or not the holder received the notice.
If notice of redemption and exchange has been given pursuant to this Clause (iv)
then on or after the Exchange Date (unless the Corporation shall default in
issuing Debentures in redemption of and in exchange for shares of Series A) and
notwithstanding that any certificates for shares of this series have not been
surrendered for exchange, the rights of the holders of the Series A as
stockholders of the Corporation shall cease (except the right to receive accrued
and unpaid dividends to the date of redemption, whether or not earned or
declared), and the person or persons entitled to receive the Debentures issuable
upon such redemption and exchange shall be treated for all purposes as the
registered holder or holders of such Debentures. Upon the surrender (and
endorsement, if required by the Corporation) in accordance with such notice of
the certificates for shares of Series A, such certificates shall be exchanged
for Debentures and such accrued dividends in accordance with this Clause (iv).
(D) Prior to issuance of the Debentures, the Corporation will use
reasonable efforts to list the Debentures for trading on the New York Stock
Exchange or, if they cannot be so listed, the Corporation will use reasonable
efforts to list the Debentures on another principal national securities exchange
or include them on a national quotations system.
(v) Liquidation.
(A) In case of the voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, the holders of any shares of Series A are
entitled to receive a liquidation preference of $50 per share, plus an amount
equal to the dividends accrued and unpaid thereon to the payment date, before
any distribution is made to the holders of Junior Stock.
(B) The holders of shares of Series A and all Parity Stock shall
share ratably, in accordance with the respective amounts payable thereon, in any
such distribution which is not sufficient to pay in full the aggregate of the
amounts payable thereon. After payment in full of the liquidation price to which
the holders of shares of Series A are entitled, the holders of shares of Series
A will not be entitled to any further participation in any distribution of
assets by the Corporation.
(C) Neither a consolidation or merger of the Corporation with or
into any other corporation, nor a merger of any other corporation with or into
the Corporation, nor a sale or transfer of all or substantially all of the
Corporation's assets for cash or securities nor a statutory share exchange in
which stockholders of the Corporation may participate shall be considered a
liquidation, dissolution or winding-up of the Corporation within the meaning of
this Clause (v).
(vi) Conversion.
(A) Subject to the provisions for adjustment hereinafter set forth,
each share of Series A shall be convertible at the option of the holder thereof,
in the manner hereinafter set forth, into fully paid and nonassessable shares of
Common Stock at the conversion price, determined as hereinafter provided, in
effect on the date of conversion, provided that if any of the Series A is called
for redemption (whether for cash or Debentures), the conversion rights
pertaining thereto will terminate at the close of business on the redemption
date. The price at which shares of Common Stock shall be delivered upon
conversion (hereinafter referred to as the "Conversion Price") shall be
initially $46.00 per share of Common Stock. The Conversion Price shall be
adjusted in certain instances as provided in subclause (B) of this Clause (vi).
Any holder of shares of Series A desiring to convert the same into shares of
Common Stock shall surrender the certificate or certificates for the shares of
Series A being converted, duly endorsed or assigned to the Corporation or in
blank, at the principal office of the Corporation or at a bank or trust company
appointed by the Corporation for that purpose, accompanied by a written notice
of conversion specifying the number (in whole shares) of shares of Series A to
be converted and the name or names in which such holder wishes the certificate
or certificates for shares of Common Stock to be issued; in case such notice
shall specify a name or names other than that of such holder, such notice shall
be accompanied by payment of all transfer taxes payable upon the issue of shares
of Common Stock in such name or names. In case less than all of the shares of
Series A represented by a certificate are to be converted by a holder, upon such
conversion the Corporation shall issue and deliver or cause to be issued and
delivered, to the holder a certificate or certificates for the shares of Series
A not so converted. The holders of shares of Series A at the close of business
on a dividend payment record date shall be entitled to receive the dividend
payable on such shares (except shares called for redemption on a redemption date
between such record date and the Dividend Payment Date) on the corresponding
dividend payment date notwithstanding the conversion thereof or the
Corporation's default on payment of the dividend due on such Dividend Payment
Date. However, shares of Series A surrendered for conversion during the period
from the close of business on any dividend payment record date for the Series A
to the opening of business on the corresponding Dividend Payment Date (except
shares called for redemption on a redemption date during such period) must be
accompanied by payment of an amount equal to the dividend payable on such shares
on such Dividend Payment Date. A holder of shares of Series A on a dividend
payment record date who (or whose transferee) converts shares of Series A on a
dividend payment date will receive the dividend payable on such shares by the
Corporation on such date, and the converting holder need not include payment in
the amount of such dividend upon surrender of shares of Series A for conversion.
Except as provided above, no payment or adjustment will be made on account of
accrued or unpaid dividends upon the conversion of shares of Series A.
(B) The Conversion Price shall be adjusted from time to time as
follows:
(1) on any class of capital stock of the Corporation in shares
of Common Stock, the Conversion Price in effect at the opening of business on
the day following the date fixed for the determination of stockholders entitled
to receive such dividend or other distribution shall be reduced by multiplying
such Conversion Price by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution, such reduction to become effective immediately after the opening
of business on the day following the date fixed for such determination.
(2) In case the Corporation shall issue rights or warrants to
all holders of its shares of Common Stock entitling them to subscribe for or
purchase Common Stock at a price per share less than the current market price
per share (determined as provided in subclause (C)) of the Common Stock on the
date fixed for the determination of stockholders entitled to receive such rights
or warrants, the Conversion Price in effect at the opening of business on the
day following the date fixed for such determination shall be reduced by
multiplying such Conversion Price by a fraction of which the numerator shall be
the number of shares of Common Stock outstanding at the close of business on the
date fixed for such determination plus the number of shares of Common Stock
which the aggregate of the offering price of the total number of shares of
Common Stock so offered for subscription or purchase would purchase at such
current market price and the denominator shall be the number of shares of Common
Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, such reduction to become effective immediately after
the opening of business on the day following the date fixed for such
determination.
(3) In case the outstanding shares of Common Stock shall be
subdivided into a greater number of shares, the Conversion Price in effect at
the opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and, conversely, in case
outstanding shares of Common Stock shall each be combined into a smaller number
of shares, the Conversion Price in effect at the opening of business on the day
following the day upon which such combination becomes effective shall be
proportionately increased, such reduction or increase, as the case may be, to
become effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.
(4) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of shares of Common Stock evidences of indebtedness or
assets (including securities, but excluding any rights or warrants referred to
in subclause (B)(2), any dividend or distribution paid in cash out of the earned
surplus of the Corporation and any dividend or distribution referred to in
subclause (B)(1), the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such distribution by a
fraction of which the numerator shall be the current market price per share
(determined as provided in subclause (C)) of the Common Stock on the date fixed
for such determination less the then fair market value (as determined by the
Board of Directors, whose determination shall be conclusive) of the portion of
the assets or evidences of indebtedness so distributed allocable to one share of
Common Stock and the denominator shall be such current market price per share of
the Common Stock, such adjustment to become effective immediately prior to the
opening of business on the day following the date fixed for the determination of
stockholders entitled to receive such distribution.
(5) The reclassification of Common Stock into securities other
than Common Stock (other than any reclassification upon a consolidation or
merger to which subclause (F) applies) shall be deemed to involve (a) a
distribution of such securities other than Common Stock to all holders of Common
Stock (and the effective date of such reclassification shall be deemed to be
"the date fixed for the determination of stockholders entitled to receive such
distribution" and the "date fixed for such determination" within the meaning of
subclause (B)(4), and (b) a subdivision or combination, as the case may be, of
the number of shares of Common Stock outstanding immediately prior to such
reclassification into the number of shares of Common Stock outstanding
immediately thereafter (and the effective date of such reclassification shall be
deemed to be "the day upon which such subdivision becomes effective", or "the
day upon which such combination becomes effective", as the case may be, and "the
day upon which such subdivision or combination becomes effective" within the
meaning of subclause (B)(3) of this Section).
(C) For the purpose of any computation under subclauses (B)(2) and
(B)(4), the current market price per share of Common Stock on any day shall be
deemed to be the average of the daily Closing Prices for the 15 consecutive
Business Days selected by the Board of Directors commencing not less than 20 nor
more than 30 Business Days before the day in question. The term "Closing Price"
on any day shall mean the reported last sale price or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices regular way, in either case on the New York Stock Exchange, or, if the
Common Stock is not listed or admitted to trading on such Exchange, on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on the National Association of Securities Dealers Automated
Quotations National Market System or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or quoted on such
National Market System, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange member firm
selected from time to time by the Board of Directors for that purpose; and the
term "Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday, and
Friday which is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to close.
(D) Notwithstanding the provisions of subclause (B) above, no
adjustment in the Conversion Price shall be required unless such adjustment
(plus any adjustments not previously made by reason of this subclause (D)) would
require an increase or decrease of at least 1% in such price; provided, however,
that any adjustments which by reason of this subclause (D) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Clause (vi) shall be made to the nearest
cent.
(E) The Corporation may make such reductions in the Conversion
Price, in addition to those required by this Clause (vi), as it considers to be
advisable in order to avoid or diminish any income tax to any holder of shares
of Common Stock resulting from any dividend or distribution of stock or issuance
of rights or warrants to purchase or subscribe forstock or from any event
treated as such for income tax purposes or for any other reasons. The
Corporation shall have the power to resolve any ambiguity or correct any error
in this Clause (vi) and its actions in so doing shall be final and conclusive.
(F) In case the Corporation shall effect any capital reorganization
of the Common Stock (other than a subdivision, combination, capital
reorganization or reclassification provided for in subclause (B)) or shall
consolidate, merge or engage in a statutory share exchange with or into any
other corporation (other than a consolidation, merger or share exchange in which
the Corporation is the surviving corporation and each share of Common Stock
outstanding immediately prior to such consolidation or merger is to remain
outstanding immediately after such consolidation or merger) or shall sell or
transfer all or substantially all its assets to any other corporation, lawful
provision shall be made as a part of the terms of such transaction whereby the
holders of shares of Series A shall receive upon conversion thereof, in lieu of
each share of Common Stock which would have been issuable upon conversion of
such shares if converted immediately prior to the consummation of such
transaction, the same kind and amount of stock (or other securities, cash or
property, if any) as may be issuable or distributable in connection with such
transaction with respect to each share of Common Stock outstanding at the
effective time of such transaction, subject to subsequent adjustments for
subsequent stock dividends and distributions, subdivisions or combinations of
shares, capital reorganizations, reclassifications, consolidations mergers or
share exchanges as nearly equivalent as possible to the adjustments provided for
in this Clause (vi).
(G) Whenever the Conversion Price is adjusted as herein provided:
(1) the Corporation shall compute the adjusted Conversion
Price and shall cause to be prepared a certificate signed by the chief financial
or accounting officer of the Corporation setting forth the adjusted Conversion
Price and showing in reasonable detail the facts upon which such adjustment is
based and the computation thereof and such certificate shall forthwith be filed
with each transfer agent for the shares of Series A; and
(2) a notice stating that the Conversion Price has been
adjusted and setting forth the adjusted Conversion Price shall, as soon as
practicable, be mailed to the holders of record of outstanding shares of Series
A.
(H) In case:
(1) the Corporation shall declare a dividend or other
distribution on its shares of Common Stock otherwise than in cash out of its
earned surplus;
(2) the Corporation shall authorize the granting to the
holders of its shares of Common Stock of rights or warrants entitling them to
subscribe for or purchase any shares of capital stock of any class or of any
other rights;
(3) of any reclassification of the shares of Common Stock
(other than a subdivision or combination of its outstanding shares of Common
Stock), or of any consolidation, merger or share exchange to which the
Corporation is a party and for which approval of any stockholders of the
Corporation is required, or of the sale or transfer of all or substantially all
the assets of the Corporation; or
(4) of the voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation;
then the Corporation shall cause to be mailed to each transfer agent for the
shares of Series A and to the holders of record of the outstanding shares of
Series A, at least 20 days (or 10 days in any case specified in subclauses (1)
or (2) above) prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date as of which the holders of record of
shares of Common Stock to be entitled to such dividend, distribution, rights or
warrants are to be determined, or (y) the date on which such reclassification,
consolidation, merger, share exchange, sale, transfer, liquidation, dissolution
or winding-up is expected to become effective and the date as of which it is
expected that holders of record of shares of Common Stock shall be entitled to
exchange their shares for securities or other property, if any, deliverable upon
such reclassification, consolidation, merger, share exchange, sale, transfer,
liquidation, dissolution or winding-up. Such notice shall also state whether
such transaction will result in any adjustment in the Conversion Price
applicable to the shares of Series A and, if so, shall state what the adjusted
Conversion Price will be and when it will become effective. Neither the failure
to give the notice required by this subclause (H), nor any defect therein, to
any particular holder shall affect the sufficiency of the notice or the legality
or validity of the proceedings described in subclauses (H)(1) through (H)(4).
(I) The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock, for the purpose of
issuance upon conversion of shares of Series A, the full number of shares of
Common Stock then issuable upon the conversion of all shares of Series A then
outstanding and shall take all action necessary so that shares of Common Stock
so issued will be validly issued, fully paid and nonassessable.
(J) The Corporation will pay any and all stamp or similar taxes that
may be payable in respect of the issuance or delivery of shares of Common Stock
on conversion of shares of Series A. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of shares of Common Stock in a name other than that
in which the shares of Series A so converted were registered, and no such
issuance or delivery shall be made unless and until the person requesting such
issuance has paid to the Corporation the amount of any such tax or has
established to the satisfaction of the Corporation that such tax has been paid.
(K) No fractional shares or scrip representing fractional shares
shall be issued upon the conversion of shares of Series A. If any such
conversion would otherwise require the issuance of a fractional share an amount
equal to such fraction multiplied by the Closing Price per share of Common Stock
(determined as provided in subclause (C) above) on the day of conversion shall
be paid to the holder in cash by the Corporation.
(L) The certificate of any independent firm of public accountants of
recognized standing selected by the Board of Directors shall be presumptive
evidence of the correctness of any computation made under this Clause (vi).
(vii) Voting Rights. Except as otherwise required by law, holders of
shares of Series A shall have no voting rights; provided, however, that:
(A) Dividend Defaults.
(1) If on the date used to determine stockholders of record
for any meeting of stockholders for the election of directors, accrued dividends
on the shares of Series A or any Parity Stock shall not have been paid in an
aggregate amount equal to or greater than six quarterly dividends on the shares
of Series A or such Parity Stock at the time outstanding, then, and in any such
event, the number of Directors then constituting the entire Board of Directors
of the Corporation shall automatically be increased by two Directors and the
holders of shares of Series A and the holders of shares of Parity Stock, voting
together as a single class, shall be entitled at such meeting to fill such newly
created directorships. Such right to vote as a single class to elect two
Directors shall, when vested, continue until all dividends in default on the
shares of Series A and such Parity Stock, as the case may be, shall have been
paid in full and, when so paid, such right to elect two Directors separately as
a class shall cease, subject, always, to the same provisions for the vesting of
such right to elect two Directors separately as a class in the case of future
dividend defaults.
(2) So long as any shares of Series A are outstanding the
number of Directors of the Corporation shall at all times be such that the
exercise, by the holders of shares of Series A and the holders of shares of
Parity Stock, of the right to elect Directors under the circumstances provided
in paragraph (1) of this subclause (A) will not contravene any provisions of the
Maryland General Corporation Law or the Charter of the Corporation.
(3) Directors elected pursuant to paragraph (1) of this
subclause (A) shall serve until the earlier of (x) the next annual meeting of
the stockholders of the Corporation and the election (by the holders of shares
of Series A and Parity Stock) and qualification of their respective successors
or (y) the date upon which all dividends in default on the shares of Series A
and such Parity Stock shall have been paid in full. Directors elected pursuant
to paragraph (1) of this Subclause (A) may be removed by, and shall not be
removed except by, the vote of the holders of record of the outstanding shares
of Series A and Parity Stock, voting together as a single class without regard
to series, at a meeting of the stockholders, or the holders of shares of Series
A and Parity Stock, called for that purpose. If, prior to the end of the term of
any Director elected as aforesaid, a vacancy in the office of such Director
shall occur during the continuance of a default in dividends on the shares of
Series A or such Parity Stock by reason other than removal, such vacancy shall
be filled for the unexpired term by the appointment by the remaining Director
elected as aforesaid of a new Director for the unexpired term of such former
Director.
(B) Miscellaneous.
(1) Without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series A and Parity Stock, voting as a
single class, the Corporation may not:
(x) amend any provision of the Charter which would
materially adversely affect the voting powers (except as such voting powers may
be affected by the authorization of any new series of Parity Stock having the
same voting rights as Series A or by the authorization of any other shares of
any class which are not entitled to vote together with Series A in any class
vote) or other rights or preferences of holders of the shares of Series A; or
(y) authorize or create any class of stock senior to the
Series A as to dividends and upon liquidation.
(2) Without the affirmative vote of the holders of at least a
majority of the outstanding shares of Series A and Parity Stock, voting together
as a single class, the Corporation may not increase the number of shares of
Preferred Stock authorized in Article SEVENTH of the Charter or create any other
class of capital stock of the Corporation ranking on a parity with the Preferred
Stock as to dividends and upon liquidation.
IN WITNESS WHEREOF, USF&G Corporation has caused these presents to be
signed in its name and on its behalf by its President and witnessed by its
Secretary on July 31, 1986.
WITNESS: USF&G CORPORATION
William F. Spliedt Jack Moseley
Secretary President, Chief Executive Officer
and Chairman of the Board
[CORPORATE SEAL]
THE UNDERSIGNED, Chairman of the Board and President of USF&G
Corporation, who executed on behalf of the Corporation Articles Supplementary of
which this Certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles Supplementary to be the
corporate act of said Corporation and hereby certifies that the matters and
facts set forth herein with respect to the authorization and approval thereof
are true in all material respects under the penalties of perjury.
/s/Jack Moseley President, Chief Executive Officer and Chairman of the Board
USF&G CORPORATION
ARTICLES SUPPLEMENTARY
USF&G CORPORATION, a Maryland corporation, having its principal office
in Baltimore City, Maryland (which is hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: Pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Article Seventh of the Charter of the
Corporation, the Board of Directors has duly divided and classified 1,200,000
shares of the Preferred Stock of the Corporation into a series designated
"Junior Participating Preferred Stock" and designated and provided for the
issuance of such series pursuant to Articles Supplementary dated October 1, 1987
(the "Articles Supplementary - Junior Participating Preferred Stock") and filed
with the State Department of Assessment and Taxation of Maryland on October 7,
1987.
SECOND: Pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Section 1 of Article Second of the Articles
Supplementary - Junior Participating Preferred Stock, the Board of Directors has
unanimously adopted a resolution to authorize an increase in the number of
shares constituting such series.
THIRD: The terms of the Junior Participating Preferred Stock as set
forth by the Board of Directors are modified to increase the number of shares
constituting such series by deleting Section 1 of Article Second of the Articles
Supplementary - Junior Participating Preferred Stock in its entirety and in lieu
thereof substituting the following:
"1. Designation and Amount. The shares of
such series shall be designated as "Junior Participating Preferred Stock" (the
"Junior Preferred Stock") and the number of shares constituting such series
shall be 2,400,000, subject to increase or decrease by action of the Board of
Directors effectuated by further Articles Supplementary."
FOURTH: The foregoing Articles Supplementary shall be effective at the
time these Articles Supplementary are accepted for recording by the Maryland
State Department of Assessments and Taxation.
<PAGE>
IN WITNESS WHEREOF, USF&G CORPORATION has caused these presents to be signed in
its name and on its behalf by its Chairman of the Board and President and
attested to by its Secretary on April 27, 1995.
ATTEST: USF&G CORPORATION
/s/ John F. Hoffen, Jr. /s/ Norman P. Blake, Jr.
Secretary Chairman of the Board
and President
CERTIFICATION
THE UNDERSIGNED, Chairman of the Board and President of USF&G
Corporation, who executed on behalf of the Corporation the foregoing Articles
Supplementary of which this certificate is made a part, hereby acknowledges in
the name and on behalf of said Corporation the foregoing Articles Supplementary
to be the corporate act of said Corporation and hereby certifies that to the
best of his knowledge, information, and belief the matters and facts set forth
therein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
---------------------------
Norman P. Blake, Jr.
Chairman of the Board and
President
Junior Participating Preferred Stock
OF
USF&G CORPORATION
USF&G CORPORATION, a Maryland corporation, having its principal office in
Baltimore City, Maryland (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of Directors of
the Corporation by Article Seventh of the Charter of the Corporation, the Board
of Directors has duly divided and classified 1,200,000 shares of the Preferred
Stock of the Corporation into a series designated "Junior Participating
Preferred Stock" and has provided for the issuance of such series.
SECOND: The terms of the Junior Participating Preferred Stock as set by the
Board of Directors are as follows:
1. Designation and Amount. The shares of such series shall be designated as
"Junior Participating Preferred Stock" (the "Junior Preferred Stock") and the
number of shares constituting such series shall initially be 1,200,000, subject
to increase or decrease by action of the Board of Directors effectuated by
further Articles Supplementary.
2. Dividends and Distributions.
(i) The holders of shares of Junior Preferred Stock, in preference to
the holders of Common Stock and of any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the last day
of March, June, September and December in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Junior Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) Sixty-Two dollars ($62.00) or
(b) subject to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock of the
Corporation or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Junior Preferred Stock. In the event the Corporation
shall at any time after the date hereof declare or pay any dividend on Common
Stock payable in shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise) into a greater or lesser number of shares of Common Stock, then in
each such case the amount to which holders of shares of Junior Preferred Stock
were entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(ii) The Corporation shall declare a dividend or distribution on the
Junior Preferred Stock as provided in subparagraph (i) of this paragraph 2
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of Sixty-Two Dollars
($62.00) per share on the Junior Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
(iii) Dividends shall begin to accrue and be cumulative on outstanding
shares of Junior Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Junior Preferred Stock, unless the
date of issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Junior Preferred Stock entitled to receive
a quarterly dividend and before such Quarterly Dividend Payment Date, in either
of which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Junior Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Junior Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be not more than 60 days prior to the date fixed for the payment
thereof.
3. Voting Rights. The holders of shares of Junior Preferred Stock shall
have the following voting rights:
(i) Subject to the provision for adjustment hereinafter set forth, each
share of Junior Preferred Stock shall entitle the holder thereof to 100 votes on
all matters submitted to a vote of the shareholders of the Corporation. In the
event the Corporation shall at any time after the date hereof declare or pay any
dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per share to
which holders of shares of Junior Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(ii) Except as otherwise provided herein or by law, the holders of shares
of Junior Preferred Stock and the holders of shares of Common Stock and any
other capital stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of shareholders of the
Corporation.
(iii) (a) If on the date used to determine stockholders of record for any
meeting of stockholders for the election of directors, accrued dividends on the
shares of Junior Preferred Stock shall not have been paid in an aggregate amount
equal to or greater than six quarterly dividends on the shares of Junior
Preferred Stock at the time outstanding, then, and in any such event, the number
of Directors then constituting the entire Board of Directors of the Corporation
shall automatically be increased by two Directors and the holders of shares of
Junior Preferred Stock and holders of any other shares of the Preferred Stock of
the Corporation then outstanding ranking on a parity with the Junior Preferred
Stock as to dividends and upon liquidation ("Parity Stock"), voting together as
a single class, shall be entitled at such meeting to fill such newly created
directorships. Such right to vote as a single class to elect two Directors
shall, when vested, continue until all dividends in default on the shares of
Junior Preferred Stock shall have been paid in full and, when so paid, such
right to elect two Directors separately as a class shall cease, subject, always,
to the same provisions for the vesting of such right to elect two Directors
separately as a class in the case of future dividend defaults.
(b) So long as any shares of Junior Preferred Stock are outstanding
the number of Directors of the Corporation shall at all times be such that the
exercise, by the holders of shares of Junior Preferred Stock and the holders of
shares of Parity Stock, of the right to elect Directors under the circumstances
provided in paragraph (a) of this subclause (iii) will not contravene any
provisions of the Maryland General Corporation Law or the Charter of the
Corporation.
(c) Directors elected pursuant to paragraph (a) of this subclause
(iii) shall serve until the earlier of (x)the next annual meeting of the
stockholders of the Corporation and the election (by the holders of shares of
Junior Preferred and Parity Stock) and qualification of their respective
successors or (y) the date upon which all dividends in default on the shares of
Junior Preferred and such Parity Stock shall have been paid in full. Directors
elected pursuant to paragraph (a) of this subclause (iii) may be removed by, and
shall not be removed except by, the vote of the holders of record of the
outstanding shares of Junior Preferred and Parity Stock, voting together as a
single class without regard to series, at a meeting of the stockholders, or the
holders of shares of Junior Preferred and Parity Stock, called for that purpose.
If, prior to the end of the term of any Director elected as aforesaid, a vacancy
in the office of such Director shall occur during the continuance of a default
in dividends on the shares of Junior Preferred Stock by reason other than
removal, such vacancy shall be filled for the unexpired term by the appointment
by the remaining Director elected as aforesaid of a new Director for the
unexpired term of such former Director.
(iv) Except as set forth herein, holders of Junior Preferred Stock shall
have no special voting rights and their consent shall not be required (except to
the extent they are entitled to vote with holders of Common Stock and any other
capital stock of the Corporation having general voting rights as set forth
herein) for taking any corporate action.
4. Certain Restrictions.
(i) Whenever quarterly dividends or other dividends or distributions
payable on the Junior Preferred Stock as provided in paragraph 2 of this Section
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Junior Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(a) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Junior Preferred Stock;
(b) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Junior Preferred Stock, except
dividends paid ratably on the Junior Preferred Stock and all such parity stock
on which dividends are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled; (c) redeem or
purchase or otherwise acquire for consideration shares of any stock ranking
junior either as to dividends or upon liquidation, dissolution or winding up)
with the Junior Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Junior
Preferred Stock; or (d) purchase or otherwise acquire for consideration any
shares of Junior Preferred Stock, or any shares of stock ranking on a parity
with the Junior Preferred Stock, except in accordance with a purchase offer made
in writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(ii) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under subparagraph (i) of this
paragraph 4, purchase or otherwise acquire such shares at such time and in such
manner.
5. Reacquired Shares. Any shares of Junior Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be classified again and reissued as part of a new series or class of
Preferred Stock to be created by the Board of Directors pursuant to its power
contained in the Charter, subject to the conditions and restrictions on issuance
set forth herein.
6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (a)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Junior Preferred Stock unless,
prior thereto, the holders of shares of Junior Preferred Stock shall have
received One Hundred Forty dollars ($140) per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Junior
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of Common
Stock, or (b) to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Junior
Preferred Stock, except distributions made ratably on the Junior Preferred Stock
and all other such parity stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution or
winding up. In the event the Corporation shall at any time after the date hereof
declare or pay any dividend on Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise) into a greater or
lesser number of shares of Common Stock, then in each such case the aggregate
amount to which holders of shares of Junior Preferred Stock were entitled
immediately prior to such event under the proviso in clause (a) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
7. Consolidation, Merger, etc. In case the Corporation shall enter into
any consolidation, merger, share exchange, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case the shares
of Junior Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the date hereof declare or
pay any dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Junior
Preferred Stock shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
8. No Redemption. The shares of Junior Preferred Stock shall not be
redeemable.
9. Rank. The Junior Preferred Stock shall rank junior with respect to
payment of dividends and on liquidation to all other Preferred Stock of the
Corporation unless the terms of any other Preferred Stock specifically provide
that it shall rank junior to, or on a parity with, the Junior Preferred Stock.
10. Amendment. The Charter of the Corporation shall not be amended in any
manner that would materially alter or change the powers, preferences or special
rights of the Junior Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of two-thirds of the outstanding shares of
Junior Preferred Stock, voting together as a single class.
IN WITNESS WHEREOF, USF&G Corporation has caused these presents to be signed
in its name and on its behalf by its Executive Vice President and witnessed by
its Secretary on October 1, 1987.
WITNESS: USF&G CORPORATION
By William F.Spliedt, Secretary
Paul J. Scheel, Executive Vice President
THE UNDERSIGNED, Executive Vice President of USF&G Corporation, who executed
on behalf of the Corporation Articles Supplementary of which this Certificate is
made a part, hereby acknowledges in the name and on behalf of said Corporation
the foregoing Articles Supplementary to be the corporate act of said Corporation
and hereby certifies that the matters and facts set forth herein with respect to
the authorization and approval thereof are true in all material respects under
the penalties of perjury.
/s/Paul J. Scheel, Executive Vice President
USF&G CORPORATION
ARTICLES OF AMENDMENT
USF&G CORPORATION, a Maryland corporation, having its principal office in
Baltimore City, Maryland (which is hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended as follows:
Article NINTH of the Charter is amended by adding the following
paragraph (7) to said Article NINTH, as follows:
"(7) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, no director or officer of this
Corporation shall be personally liable to the Corporation or its stockholders
for money damages. No amendment of the Charter of the Corporation or repeal of
any of its provisions shall limit or eliminate the benefits provided to
directors and officers under this provision with respect to any act or omission
which occurred prior to such amendment or repeal."
SECOND: The amendment does not increase the authorized stock of the
Corporation.
THIRD: The foregoing amendment to the Charter of the Corporation has been
advised by the Board of Directors and approved by the stockholders of the
Corporation.
IN WITNESS WHEREOF, USF&G CORPORATION has caused these presents to be signed
in its name and on its behalf by its Chairman of the Board and President and
witnessed by its Secretary on May 4, 1988.
WITNESS: USF&G CORPORATION
By: William F. Spliedt, Secretary Jack Moseley, Chairman of the Board
and President
<PAGE>
Articles Supplementary
Series B
Cumulative Convertible Preferred Stock
and 11% Preferred Stock of USF&G Corporation
USF&G Corporation, a Maryland Corporation, having its principal office in
Baltimore City, Maryland (the "Corporation"), hereby certifies to the Maryland
State Department of Assessments and Taxation that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by Article SEVENTH of the Charter of the Corporation, the
Board of Directors has duly divided and classified (i) 1,300,000 shares of the
Preferred Stock of the Corporation into a Series designated Series B Cumulative
Convertible Preferred Stock and has provided for the issuance of such Series and
(ii) 1,000 shares of the Preferred Stock of the Corporation into a Series
designated 11% Preferred Stock and has provided for the issuance of such Series.
SECOND: The terms of the Series B Cumulative Convertible Preferred
Stock are as follows:
(i) Designation and Amount. The designation of the Series of the
Preferred Stock described in clause (i) of Article FIRST hereof shall be "Series
B Cumulative Convertible Preferred Stock" (the "Series B Preferred Stock"),
which shall be further designated into three subseries, being the "Series B
Cumulative Convertible Preferred Stock 1995" (the "Series B Preferred Stock
1995"), the "Series B Cumulative Convertible Preferred Stock 1996" (the "Series
B Preferred Stock 1996") and the "Series B Cumulative Convertible Preferred
Stock 1997" (the "Series B Preferred Stock 1997"). The number of shares of
Series B Preferred Stock shall be 1,300,000, of which 650,000 shall be Series B
Preferred Stock 1995, 325,000 shall be Series B Preferred Stock 1996 and 325,000
shall be Series B Preferred Stock 1997. (ii) Dividends. (a) Rate, etc. Except as
such rate of dividends may be otherwise increased pursuant to the final sentence
of this clause (ii), the holders of shares of Series B Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available therefor, annual dividends from the date of issue
thereof at the rate of $10.25 per share, calculated on the basis of a 360-day
year of 12 30-day months, accruing on a daily basis, payable quarterly, in
arrears, on January 31, April 30, July 31 and October 31 (a "Dividend Payment
Date"), in each year, commencing on July 31, 1991. Such dividends shall be
cumulative with respect to each share from the date of original issuance,
whether or not earned or declared. The rate per annum shall be increased from
$10.25 per share, as set forth in the first sentence of this clause (ii), to
$10.75 per share for the dividend period commencing August 1, 1991; provided,
however, that this sentence shall be and become of no force and effect if the
Corporation shall have received gross proceeds (exclusive of costs of issuance
and underwriters' discounts and commissions) ("Gross Proceeds") of at least
$170,000,000 pursuant to the issuance and sale of capital stock of the
Corporation after the date of issuance of the Series B Preferred Stock and prior
to September 30, 1991.
(b) Rank, etc. The Series B Preferred Stock shall rank on a parity
with the Corporation's $4.10 Series A Convertible Exchangeable Preferred Stock,
11% Preferred Stock (as defined in Article Third (i)) and Series C Cumulative
Convertible Preferred Stock, $50.00 par value (the "Series C Preferred Stock"),
if and when such Series C Preferred Stock, or any other series of Preferred
Stock by its terms ranking on a parity with the Series B Preferred Stock as to
dividends and upon liquidation, is duly divided and classified and so designated
by the Board of Directors, as to dividends and upon liquidation. Unless full
cumulative dividends on all outstanding shares of Series B Preferred Stock or
any other class of Preferred Stock ranking on a parity with the Series B
Preferred Stock as to dividends and upon liquidation at the time such dividends
are payable ("Parity Stock") have been paid or are contemporaneously declared
and paid (or declared and a sum sufficient for the payment thereof is set apart
for such payment), the Corporation will not (1) declare or pay any dividend on
the Common Stock, $2.50 par value (the "Common Stock"), of the Corporation or on
any other class of stock ranking junior to the Series B Preferred Stock as to
dividends and upon liquidation (the Common Stock and any such junior class being
the "Junior Stock") or make any payment on account of, or set apart money for, a
sinking or other analogous fund for the purchase, redemption or other retirement
of, any Junior Stock or make any distribution in respect thereof, either
directly or indirectly and whether in cash or property or in obligations or
shares of the Corporation (other than in shares of Junior Stock) or (2) purchase
any shares of Series B Preferred Stock or Parity Stock (except for consideration
payable in Junior Stock) or redeem fewer than all of the shares of Series B
Preferred Stock or Parity Stock then outstanding. Unless and until all dividends
accrued and payable but unpaid on the Series B Preferred Stock and any Parity
Stock at the time outstanding have been paid in full, all dividends declared by
the Corporation upon such Series B Preferred Stock or Parity Stock shall be
declared with respect to all Series B Preferred Stock and Parity Stock then
outstanding, so that the amounts of any dividends declared on the Series B
Preferred Stock and such Parity Stock shall in all cases bear to each other the
same ratio that, at the time of such declaration, all accrued and payable but
unpaid dividends on the Series B Preferred Stock and such other Parity Stock,
respectively, bear to each other.
(iii) Liquidation. (a) Preference on Liquidation. In the event of
any liquidation, dissolution or winding up of the affairs of the Corporation
(any or all of such events, a "liquidation"), whether voluntary or involuntary,
the holders of shares of Series B Preferred Stock then outstanding shall be
entitled, pari passu as if members of a single class of securities with the
holders of other Parity Stock, to be paid out of the assets of the Corporation,
before any payment shall be made to the holders of the Junior Stock or the
holders of any other capital stock of the Corporation, an amount equal to $100
per share of such Series B Preferred Stock (the "Liquidation Value") plus an
amount equal to the dividends accrued and unpaid thereon to the payment date.
Alternatively, a holder of shares of Common Stock may convert any or all of such
holder's shares of Series B Preferred Stock into shares of Common Stock in
accordance with clause (vi) of this Article SECOND.
(b) Insufficient Assets. If, upon any liquidation of the Corporation,
the assets of the Corporation are insufficient to pay the holders of shares of
the Parity Stock then outstanding the full amounts to which they shall be
entitled, such assets shall be distributed to the holders of the Parity Stock
pro rata in proportion to the amounts to which they shall be entitled.
(c) Rights of Other Holders. In the event of any liquidation, after
payment shall have been made to the holders of the Series B Preferred Stock and
other Parity Stock of all preferential amounts to which they shall be entitled,
the holders of shares of Junior Stock and other capital stock of the Corporation
shall receive such amounts as to which they are entitled by the terms thereof.
(d) Consolidation, Merger or Sale of Assets. Neither a consolidation or merger
of the Corporation with or into any other Corporation, nor a sale or transfer of
all or substantially all of the Corporation's assets for cash or securities nor
a statutory share exchange in which stockholders of the Corporation may
participate shall be considered a liquidation, dissolution or winding-up of the
Corporation within the meaning of this clause (iii). (iv) Redemption. (a)
Special Redemption at Holders' Option Upon Change in Control Event. Subject to
and limited by the provisions of this paragraph, the Series B Preferred Stock
shall be subject to redemption at the option of the holder exercisable for a
period ending 30 days subsequent to receipt by such holder of notice from the
Corporation to the effect that a Change in Control Event (as hereinafter
defined) has occurred, upon written notice to the Corporation by such holder
specifying the number of shares and the subseries of Series B Preferred Stock
held by such holder to be redeemed. The Corporation shall give notice of any
Change in Control Event to the holders of Series B Preferred Stock within five
days of the occurrence of such Change in Control Event. The Corporation shall
redeem the Series B Preferred Stock pursuant to the notice delivered by the
requesting holder at a redemption price per share equal to the Liquidation Value
plus the Redemption Premium (as hereinafter defined) plus dividends accrued
thereon to the date of redemption (the "Special Redemption Price"). Anything in
this clause (iv)(a) to the contrary notwithstanding, the Corporation shall be
required to redeem such Series B Preferred Stock to, and only to, the extent to
which, after receiving notice from the holder, the Corporation shall have, (1)
using its best efforts, offered for sale in one or more issuances,
non-redeemable (other than at the option of the Corporation) capital stock of
the Corporation and (2) received net proceeds from the sale thereof equal to or
greater than the Special Redemption Price with respect to such Series B
Preferred Stock to be redeemed; provided, however, that to the extent such net
proceeds are less than the aggregate amount required to redeem all such Series B
Preferred Stock requested to be redeemed at the Special Redemption Price, the
Corporation shall, to the extent of such net proceeds, redeem such Series B
Preferred Stock pro rata from the holders requesting such redemption. For the
purposes of this clause (iv) the following definitions shall apply:
(A) "Change in Control Event" shall mean (i) the acquisition in one
or more related transactions by any Person of beneficial ownership, direct or
indirect, of securities of the Corporation representing 50% or more of the
combined voting power of the Corporation's then outstanding voting securities,
(ii) the sale, transfer or other disposition in one or more related transactions
of all or substantially all of the assets of the Corporation or (iii) the merger
or consolidation of the Corporation with or into another Person, other than a
wholly-owned subsidiary, unless such merger or consolidation does not result in
a reclassification, conversion, exchange or cancellation of any outstanding
shares of Common Stock of the Corporation.
(B) "Redemption Premium" shall mean:
Period
June 1, 1991 to May 31, 1992 $10.250
June 1, 1992 to May 31, 1993 9.225
June 1, 1993 to May 31, 1994 8.200
June 1, 1994 to May 31, 1995 7.175
June 1, 1995 to May 31, 1996 6.150
June 1, 1996 to May 31, 1997 5.125
June 1, 1997 to May 31, 1998 4.100
June 1, 1998 to May 31, 1999 3.075
June 1, 1999 to May 31, 2000 2.050
June 1, 2000 to May 31, 2001 1.025
June 1, 2001 and thereafter 0
provided, however, that if the dividend rate on the Series B Preferred Stock has
been increased pursuant to the last sentence of Article Second (ii), "Redemption
Premium" shall mean:
Period
June 1, 1991 to May 31, 1992 $10.750
June 1, 1992 to May 31, 1993 9.675
June 1, 1993 to May 31, 1994 8.600
June 1, 1994 to May 31, 1995 7.525
June 1, 1995 to May 31, 1996 6.450
June 1, 1996 to May 31, 1997 5.375
June 1, 1997 to May 31, 1998 4.300
June 1, 1998 to May 31, 1999 3.225
June 1, 1999 to May 31, 2000 2.150
June 1, 2000 to May 31, 2001 1.075
June 1, 2001 and thereafter 0
(b) Optional Redemption Upon Satisfaction of Certain Conditions. The
Series B Preferred Stock shall be subject to redemption, at the option of the
Corporation, in whole or from time to time in part, in each case as set forth in
the second proviso below, (i) at any time on or after June 1, 1994 and prior to
June 1, 1997, at a per share redemption price equal to the Liquidation Value
plus any dividends accrued thereon to the date of redemption, and (ii) at any
time on or after June 1, 1997, at a per share redemption price equal to the
Special Redemption Price; provided, however, that in the event of a redemption
described in clause (i), on the date notice of redemption is given and for each
of the twenty consecutive trading days prior to such date, the closing price for
a share of Common Stock on the principal national securities exchange for such
Common Stock shall be equal to or greater than an amount equal to 150% of the
Conversion Price (as defined in clause (vi) hereof) then in effect; provided,
further, however, that the Corporation may redeem (i) only Series B Preferred
Stock 1995 prior to June 1, 1995 and (ii) only Series B Preferred Stock 1995 or
Series B Preferred Stock 1996 on or after June 1, 1995 and prior to June 1,
1996.
(c) Notice of Redemption. The Corporation shall give each
holder of Series B Preferred Stock written notice of each redemption pursuant to
clause (iv) (b) hereof not less than 30 days nor more than 45 days prior to any
redemption date, specifying such redemption date and the number of shares to be
redeemed on such date. Notice of redemption having been given as aforesaid, the
number of shares to be redeemed as specified in such notice shall be so redeemed
on the redemption date specified, except to the extent that any share of
Series B Preferred Stock which is to be so redeemed shall have been surrendered
to the Corporation for conversion prior to such redemption date in accordance
with clause (vi) hereof.
(d) Effect of Redemption. On or after the date established for
redemption, all rights in respect of the shares of Series B Preferred Stock to
be redeemed, except the right to receive the applicable redemption price,
including premium, if any, plus accrued dividends, if any, to the date of
redemption, shall (unless default shall be made by the Corporation in the
payment of the applicable redemption price, including premium, if any, plus
accrued dividends, if any, in which event such rights shall be exercisable until
such default is cured) cease and terminate, and such shares shall no longer be
deemed to be outstanding, notwithstanding that any certificates representing
such shares shall not have been surrendered to the Corporation.
(e) Conversion Prior to Redemption. Anything to the contrary in
this clause (iv) of this Article SECOND notwithstanding, the holders of Series B
Preferred Stock shall have the right, exercisable at any time prior to the date
set for redemption thereof, to convert all or any part of such Series B
Preferred Stock into shares of Common Stock pursuant to clause (vi) hereof.
(v) Voting Rights. Excepting the rights specified below in this
clause (v), the holders of the Series B Preferred Stock shall not be entitled to
any voting rights. For purposes of this clause (v) and in any case where the
holders of the Series B Preferred Stock are entitled to vote upon any matter
together with holders of Parity Stock as a single class, holders of Series B
Preferred Stock shall have a number of votes per share determined by dividing
the Liquidation Value of such share by $50.00.
(a) Voting Rights Related to Unpaid Dividends.
(1) If on the date used to determine stockholders of record for any
meeting of stockholders for the election of directors, accrued dividends on the
shares of Series B Preferred Stock or any Parity Stock shall not have been paid
in an aggregate amount equal to or greater than two quarterly dividends on the
shares of Series B Preferred Stock or such Parity Stock at the time outstanding,
then, and in any such event, the number of Directors then constituting the
entire Board of Directors of the Corporation shall automatically be increased by
two Directors and the holders of shares of Series B Preferred Stock and the
holders of shares of Parity Stock, voting together as a single class, shall be
entitled at such meeting to fill such newly created directorships. Such right to
vote as a single class to elect two Directors shall, when vested, continue until
all dividends in default on the shares of Series B Preferred Stock and such
Parity Stock, as the case may be, shall have been paid in full and, when so
paid, such right to elect two Directors separately as a class shall cease,
subject, always, to the same provisions for the vesting of such right to elect
two Directors separately as a class in the case of future dividend defaults.
(2) So long as any shares of Series B Preferred Stock are outstanding
the number of Directors of the Corporation shall at all times be such that the
exercise, by the holders of shares of Series B Preferred Stock and the holders
of shares of Parity Stock, of the right to elect Directors under the
circumstances provided in paragraph (1) of this subclause (a) will not
contravene any provisions of the Maryland General Corporation Law or the Charter
of the Corporation.
(3) Directors elected pursuant to paragraph (1) of this subclause (a)
shall serve until the earlier of (A) the next annual meeting of the stockholders
of the Corporation and the election (by the holders of shares of Series B
Preferred Stock and Parity Stock) and qualification of their respective
successors or (B) the date upon which all dividends in default on the shares of
Series B Preferred Stock and such Parity Stock shall have been paid in full.
Directors elected pursuant to paragraph (1) of this subclause (a) may be removed
by, and shall not be removed except by, the vote of the holders of record of the
outstanding shares of Series B Preferred Stock and Parity Stock, voting together
as a single class without regard to Series, at a meeting of the stockholders, or
the holders of shares of Series B Preferred Stock and Parity Stock, called for
that purpose. If, prior to the end of the term of any Director elected as
aforesaid, a vacancy in the office of such Director shall occur during the
continuance of a default in dividends on the shares of Series B Preferred Stock
or such Parity Stock by reason other than removal, such vacancy shall be filled
for the unexpired term by the appointment by the remaining Director elected as
aforesaid of a new Director for the unexpired term of such former Director.
(b) Additional Capital Stock, etc. The Corporation shall not,
without the affirmative consent or approval of the holders of shares
representing at least 66-2/3% of the Series B Preferred Stock then outstanding,
voting as a single class (such consent or approval to be given by written
consent in lieu of a meeting or by vote at a meeting called for such purpose for
which notice shall have been given to the holders of the Series B Preferred
Stock): (i) authorize the issuance of any new, or increase the authorized number
of shares of any existing, class of capital stock of the Corporation which would
be senior or superior as to dividends and upon liquidation to the Series B
Preferred Stock, (ii) increase the number of shares of Preferred Stock
authorized in the Charter or create any other class of stock (or any other
Series of Preferred Stock) ranking on a parity with the Series B Preferred
Stock, 11% Preferred Stock, Series C Preferred Stock and any other Parity Stock
(which other Parity Stock, together with the Series C Preferred Stock, shall not
exceed $170,000,000 in Liquidation Value plus an additional $25,500,000 in
Liquidation Value of such stock which may be issued pursuant to an underwriter's
over-allotment option) issued or issuable as part of the Total Equity Financing
(as defined below) as to dividends and upon liquidation, (iii) reissue any
shares of Series B Preferred Stock that have been redeemed or (iv) take any
action to cause any amendment, alteration or repeal of any of the provisions of
the Charter that would materially adversely affect the rights of holders of
Series B Preferred Stock.
(vi) Conversion Rights. (a) Optional Conversion of Series B Preferred
Stock. The holder of a share of Series B Preferred Stock shall have the right,
at such holder's option, at any time or from time to time to convert such share
of Series B Preferred Stock into such number of fully paid and nonassessable
shares of Common Stock (the "Conversion Shares") as is obtained by dividing the
Liquidation Value by $12.025, being a price equal to the sum of (i) the average
of the closing price for Common Stock on the New York Stock Exchange for each of
the 20 consecutive trading days immediately preceding the date of issue of the
Series B Preferred Stock (the "Average Price") plus (ii) 15% of the Average
Price (the "Initial Conversion Price").
(b) If at any time after the date hereof and prior to June 1,
1992 the Corporation (i) shall have issued or sold any convertible security or
instrument convertible into Common Stock at less than the Initial Conversion
Price or (ii) shall have issued or sold any Common Stock at a price per share
less than the Average Price or (iii) shall have issued or sold warrants, options
or rights to purchase Common Stock at a price such that the sum of such price
and the price at which such instrument maybe exercised is less than the Initial
Conversion Price, then the Initial Conversion Price shall be adjusted to (xx)
the price at which such convertible security or instrument may be exercised or
(yy) the sale price of such Common Stock plus 15% of such sale price or (zz) the
sum of the price of such instrument and its exercise price, respectively;
provided, however, that there shall not be taken into account for the purposes
of such adjustment (A) stock, options or rights issued to the officers or key
employees of the Corporation and of its subsidiaries or the issuance of any
securities pursuant to employee stock purchase plans or (B) any sale or issuance
of such securities, instruments, capital stock or warrants that yields Gross
Proceeds (including further proceeds, if any, upon the exercise thereof) of less
than $15,000,000 in the aggregate; provided, further, however that in any case
the Initial Conversion Price shall not be less than $10.00. If the Initial
Conversion Price should be adjusted pursuant to clause (xx), (yy) or (zz) above
prior to December 31, 1991 and such adjustment would result in the Series B
Preferred Stock being convertible into more shares of Common Stock than the
Corporation has authorized and reserved for such purpose, then no such
adjustment shall be made at such time; provided, however, that the Corporation
shall use its best efforts to increase the number of authorized and reserved
shares of Common Stock to a number sufficient to effect such adjustment as
promptly as practicable; provided, further, however, that any adjustment not
made as a result of this sentence shall be made immediately upon the increase of
authorized shares of Common Stock. The provisions of this paragraph (b) shall be
of no further force and effect and the adjustments to the Initial Conversion
Price required by this paragraph shall not be made for any event that occurs
from and after the date, if any, that the Total Equity Financing (as hereinafter
defined) exceeds $250,000,000. For the purposes of this clause (vi) of this
Article Second, "Total Equity Financing" shall at any date mean Gross Proceeds
(calculated using the Liquidation Value with respect to the Series B Preferred
Stock) from the sale, on and after the date of issuance of the Series B
Preferred Stock, of capital stock of the Corporation (including Series B
Preferred Stock and Series C Preferred Stock, but excluding the issuance of any
11% Preferred Stock) or any other securities convertible into or exchangeable
for capital stock of the Corporation.
(c) If the Initial Conversion Price would have been reduced to less
than $10.00 pursuant to any provision of clause (vi) (b) above but for the
provisos therein prohibiting any Initial Conversion Price below $10.00 (the
Initial Conversion Price as so adjusted without regard to any prohibition on a
price below $10.00, being referred to as the "Fully Adjusted Conversion Price"),
the Corporation shall, without additional consideration therefor, issue a number
of shares of its 11% Preferred Stock to each holder of Series B Preferred Stock
calculated pursuant to the following formula: Fully Adjusted Conversion Price
multiplied by Incremental Shares multiplied by 0.5, divided by $10,000. For the
purposes of this paragraph (c) "Incremental Shares" shall mean (A) that number
of shares of Common Stock that each holder of Series B Preferred Stock would
have received upon conversion of such Series B Preferred Stock if the Initial
Conversion Price had been the Fully Adjusted Conversion Price, less (B) that
number of shares of Common Stock each holder will receive upon conversion
assuming an Initial Conversion Price of $10.00.
Initial Conversion Price and Fully Adjusted Conversion Price,
individually or collectively, as applicable, are hereinafter referred to as the
"Conversion Price." The Conversion Shares and the Conversion Price are subject
to certain adjustments as set forth herein, and the terms Conversion Shares and
Conversion Price as used herein shall as of any time be deemed to include all
such adjustments to be given effect as of such time in accordance with the terms
hereof.
Upon the exercise of the option of the holder of any shares of Series
B Preferred Stock to convert Series B Preferred Stock into Common Stock, the
holder of such shares of Series B Preferred Stock to be converted shall
surrender the certificates representing the shares of Series B Preferred Stock
so to be converted in the manner provided in clause (vi)(d) below.
(d) Delivery of Stock Certificates; No Fractional Shares. The holder
of any shares of Series B Preferred Stock may exercise the conversion right
pursuant to clause (vi) (a) above by delivering to the Corporation during
regular business hours at the office of the Corporation the certificate or
certificates for the shares to be converted, duly endorsed or assigned either in
blank or to the Corporation (if required by it), accompanied by written notice
stating that such holder elects to convert such shares. Conversion shall be
deemed to have been effected on the date when the aforesaid delivery is made,
and such date is referred to herein as the "Conversion Date." As promptly as
practicable thereafter the Corporation shall issue and deliver to or upon the
written order of such holder to the place designated by such holder, a
certificate or certificates for the number of full shares of Common Stock to
which such holder is entitled and a check or cash in respect of any fractional
interest in a share of Common Stock, as provided below, payable with respect to
the shares of Series B Preferred Stock so converted; provided, however, that in
the case of a conversion in connection with liquidation, no such certificates
need be issued. The person in whose name the certificate or certificates for
Common Stock are to be issued shall be deemed to have become the stockholder of
record in respect of such Common Stock on the applicable Conversion Date unless
the transfer books of the Corporation are closed on that date, in which event
such holder shall be deemed to have become the stockholder of record in respect
of such Common Stock on the next succeeding date on which the transfer books are
open, but the Conversion Price shall be that in effect on the Conversion Date.
Upon conversion of only a portion of the number of shares covered by a
certificate representing shares of Series B Preferred Stock surrendered for
conversion, the Corporation shall issue and deliver to or upon the written order
of the holder of the certificate so surrendered for conversion, at the expense
of the Corporation, a new certificate covering the number of shares of Series B
Preferred Stock representing the unconverted portion of the certificate so
surrendered. If the new certificate or certificates are to be issued to a person
who is not the registered holder of the certificate delivered for conversion,
any transfer taxes applicable to the transaction shall be paid by such
transferee.
(e) No Fractional Shares of Common Stock. (i) No fractional
shares of Common Stock shall be issued upon conversion of shares of Series B
Preferred Stock. Instead of any fractional share of Common Stock which would
otherwise be issuable upon conversion of any shares of Series B Preferred Stock,
the Corporation shall pay a cash adjustment in respect of such fractional
interest in an amount equal to the then current Market Price (as defined in
clause (vi)(f)(8) below) of a share of Common Stock multiplied by such
fractional interest. The holders of fractional interests shall not be entitled
to any rights as stockholders of the Corporation in respect of such fractional
interests. In determining the number of shares of Common Stock and the payment,
if any, in lieu of fractional shares that a holder of Series B Preferred Stock
shall receive, the total number of shares of Series B Preferred Stock
surrendered for conversion by such holder shall be aggregated.
(ii) The Corporation shall forthwith upon conversion of all or any
portion of the Series B Preferred Stock pay all dividends accrued on such Series
B Preferred Stock to the date of such conversion.
(f) Adjustment of Conversion Price Upon Issuance of Common Stock. If
and whenever (i) after the date hereof and prior to June 1, 1992, the Total
Equity Financing shall have yielded Gross Proceeds in excess of $250,000,000 and
the Corporation shall thereafter take any of the actions described in subclauses
(i), (ii) or (iii) of clause (b) above, (except (xx) upon conversion of the
Series B Preferred Stock (yy) issuances subject to subclauses (A) and (B) of the
first proviso set forth in clause (b) and (zz) the term "Average Price" in
subclause (ii) of clause (b) shall mean the Conversion Price as then in effect);
or (ii) at any time after the date hereof the Corporation takes any of the
actions described in paragraphs (1) through (4) below involving the deemed
issuance of shares of Common Stock for a consideration per share less than the
Market Price on the day immediately prior to such deemed issue or sale, then,
forthwith upon such actual or deemed issue or sale, as the case may be, the
Conversion Price shall be reduced (but not increased, except as otherwise
specifically provided in paragraph (3) below) to the price (calculated to the
nearest cent) (or, where an event may occur which would require an adjustment
under more than one provision hereof, to the lower of the prices) determined as
follows:
(A) in the case of taking any of the actions described above in
subclause (i) of this clause (f), by dividing (i) an amount equal to the sum of
(A) the aggregate number of shares of Common Stock outstanding immediately prior
to such issue or sale multiplied by the then existing Conversion Price and (B)
the consideration, if any, received by the Corporation upon such issue or sale
(determined, in the case of warrants, options, rights or convertible securities,
on the basis described below in paragraphs (1) and (2) as the Rights Formula and
the Convertible Formula), by (ii) the aggregate number of shares of Common Stock
of all classes outstanding immediately after such issue or sale (determined, in
the case of warrants, options, rights or convertible securities, on the basis
described below in paragraphs (1) and (2) as the Rights Formula and the
Convertible Formula); and
(B) in the case of taking any of the actions described above in
subclause (ii) of this clause (f), by multiplying the Conversion Price in effect
immediately prior to the time of such deemed issue or sale by a fraction, the
numerator of which shall be the sum of (i) the aggregate number of shares of
Common Stock outstanding immediately prior to such issue or sale multiplied by
the Market Price on the day immediately prior to such issue or sale plus (ii)
the consideration received by the Corporation upon such issue or sale, and the
denominator of which shall be the product of (iii) the aggregate number of
shares of Common Stock of all classes outstanding immediately after such issue
or sale, multiplied by (iv) the Market Price on the day immediately prior to
such issue or sale.
No adjustment of the Conversion Price, however, shall be made in an
amount less than $.10 per share, but any such lesser adjustment shall be carried
forward and taken into account at the time of and together with the next
subsequent adjustment.
For the purposes of subclause (ii) of this clause (vi)(f), the
following paragraphs (1) through (4) shall also be applicable; and for purposes
of this clause (vi)(f) generally, the following paragraphs (5) through (10)
shall be applicable:
(1) Issuance of Rights or Options - In case at any time after the
date hereof the Corporation shall in any manner grant (whether directly or by
assumption in a merger or otherwise, except in the circumstances described in
clause (vi)(g) below) any rights to subscribe for or to purchase, or any options
for the purchase of, Common Stock or any stock or securities convertible into or
exchangeable for Common Stock (such convertible or exchangeable stock or
securities being herein called "Convertible Securities"), whether or not such
rights or options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such rights or options or upon conversion
or exchange of such Convertible Securities (determined by dividing (i) the total
amount, if any, received or receivable by the Corporation as consideration for
the granting of such rights or options, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the exercise
of such rights or options, plus, in the case of such rights or options which
relate to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the exercise of such
rights or options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such rights or options (the "Rights
Formula")) shall be less than the Market Price, determined as of the date of
granting such rights or options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such rights or options or upon
conversion or exchange of all such Convertible Securities issuable upon the
exercise of such rights or options shall (as of the date of granting of such
rights or options) be deemed to be outstanding and to have been issued for such
price per share. Except as provided in paragraph (3), no further adjustment of
the Conversion Price shall be made upon the actual issue of such Common Stock or
of such Convertible Securities upon exercise of such rights or options or upon
the actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
(2) Issuance of Convertible Securities - In case at any time after the
date hereof the Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible Securities, whether
or not the rights to exchange or convert thereunder are immediately exercisable,
and the price per share for which Common Stock is issuable upon such conversion
or exchange (determined by dividing (i) the total amount received or receivable
by the Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities (the "Convertible Formula"))
shall be less than the Market Price, determined as of the date of such issue or
sale of such Convertible Securities, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all such Convertible
Securities shall (as of the date of the issue or sale of such Convertible
Securities) be deemed to be outstanding and to have been issued for such price
per share; provided, however, that (a) except as otherwise provided in paragraph
(3), no further adjustment of the Conversion Price shall be made upon the actual
issue of such Common Stock upon conversion or exchange of such Convertible
Securities, and (b) if any such issue or sale of such Convertible Securities is
made upon exercise of any rights to subscribe for or to purchase or any option
to purchase any such Convertible Securities for which adjustments of the
Conversion Price have been or are to be made pursuant to other provisions of
this clause (vi) (f), no further adjustment of the Conversion Price shall be
made by reason of such issue or sale.
(3) Change in Option Price or Conversion Rate - Upon the happening of
any of the following events, namely, if the purchase price provided for in any
right or option referred to in paragraph (1), the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities
referred to in paragraph (1) or (2), or the rate at which any Convertible
Securities referred to in paragraph (1) or (2) are convertible into or
exchangeable for Common Stock shall change (other than under or by reason of
provisions designed to protect against dilution), the Conversion Price then in
effect hereunder shall forthwith be readjusted (increased or decreased, as the
case maybe) to the Conversion Price which would have been in effect at such time
had such rights, options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or conversion rate, as
the case may be, at the time initially granted, issued or sold. On the
expiration of any such option or right referred to in paragraph (1) or the
termination of any such right to convert or exchange any such Convertible
Securities referred to in paragraph (1) or (2), the Conversion Price then in
effect hereunder shall forthwith be readjusted (increased or decreased, as the
case may be) to the Conversion Price which would have been in effect at the time
of such expiration or termination had such right, option or Convertible
Securities, to the extent outstanding immediately prior to such expiration or
termination, never been granted, issued or sold, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding. If the purchase price
provided for in any such right or option referred to in paragraph (1) or the
rate at which any Convertible Securities referred to in paragraph (1) or (2) are
convertible into or exchangeable for Common Stock shall be reduced at any time
under or by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of shares of Common Stock upon
the exercise of any such right or option or upon conversion or exchange of any
such Convertible Securities, the Conversion Price then in effect hereunder
shall, if not already adjusted, forthwith be adjusted to such amount as would
have obtained had such right, option or Convertible Securities never been issued
as to such shares of Common Stock and had adjustments been made upon the
issuance of the shares of Common Stock delivered as aforesaid, but only if as a
result of such adjustment the Conversion Price then in effect hereunder is
thereby reduced.
(4) Stock Dividends - In case at any time the Corporation shall
declare a dividend or make any other distribution upon any class or series of
stock of the Corporation payable in shares of Common Stock or Convertible
Securities, any shares of Common Stock or Convertible Securities, as the case
may be, issuable in payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration.
(5) Consideration for Stock - Anything herein to the contrary
notwithstanding, in case at any time any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such Common Stock or
Convertible Securities shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Corporation
therefor, without deduction therefrom of any expenses incurred or any
underwriting discounts, commissions or concessions paid or allowed by the
Corporation in connection therewith.
In case at any time any shares of Common Stock or any class of
Convertible Securities or any rights or options to purchase any such shares of
Common Stock or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Corporation shall be deemed to be the fair value of such
consideration as determined reasonably and in good faith by the Board of
Directors of the Corporation, without deduction of any expenses incurred or any
underwriting discounts, commissions or concessions paid or allowed by the
Corporation in connection therewith. In case at any time any shares of Common
Stock or any class or Convertible Securities or any rights or options to
purchase such shares of Common Stock or Convertible Securities shall be issued
in connection with any merger or consolidation in which the Corporation is the
surviving Corporation, the amount of consideration received therefor shall be
deemed to be the fair value as determined reasonably and in good faith by the
Board of Directors of the Corporation of such portion of the assets and business
of the nonsurviving Corporation as such Board may determine to be attributable
to such shares of Common Stock, Convertible Securities, rights or options, as
the case may be. In case at any time any rights or options to purchase any
shares of Common Stock or Convertible Securities shall be issued in connection
with the issue and sale of other securities of the Corporation, together
comprising one integral transaction in which no consideration is allocated to
such rights or options by the parties thereto, such rights or options shall be
deemed to have been issued for an amount of consideration equal to the fair
value thereof as determined reasonably and in good faith by the Board of
Directors of the Corporation.
(6) Record Date - In case the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in shares of Common Stock or in
Convertible Securities, or (ii) to subscribe for or purchase shares of Common
Stock or Convertible Securities, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold as a result of the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(7) Treasury Shares - The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of this clause
(vi)(f).
(8) Definition of Market Price - Unless otherwise set forth in these
Articles, "Market Price" shall mean, for any day, the last sale price of the
Common Stock on the principal national securities exchange on which the Common
Stock may at the time be listed, or, if there shall have been no sales on any
such exchange on any such day, the average of the bid and asked prices at the
end of such day, or, if the Common Stock shall not be so listed, the average of
the bid and asked prices at the end of the day in the domestic over-the-counter
market. If at any time the Common Stock is not listed on any exchange or quoted
in the domestic over-the-counter market, the "Market Price" shall be deemed to
be the higher of (aa) the book value thereof, as determined (in accordance with
generally accepted accounting principles consistent with those then being
applied by the Corporation) by any firm of independent public accountants (which
may be the regular auditors of the Corporation) of recognized national standing
selected by the Board of Directors of the Corporation, as of the last day of the
month ending within 31 days preceding the date as of which the determination is
to be made, and (bb) the fair value thereof, as determined in good faith by the
Board of Directors of the Corporation.
(9) Determination of Market Price under Certain Circumstances-
Anything herein to the contrary notwithstanding, in case at any time after the
date hereof the Corporation shall issue any shares of Common Stock or
Convertible Securities, or any rights or options to purchase any such Common
Stock or Convertible Securities, in connection with the acquisition by the
Corporation of the stock or assets of any other Corporation or the merger of any
other Corporation into the Corporation under circumstances where on the date of
the issuance of such shares of Common Stock or Convertible Securities or such
rights or options the consideration received for such Common Stock or deemed to
have been received for the Common Stock into which such Convertible Securities
or such rights or options are convertible is less than the Market Price of the
Common Stock but on the date the number of shares of Common Stock or Convertible
Securities (or in the case of Convertible Securities other than stock, the
aggregate principal amount of Convertible Securities) or the number of such
rights or options was determined (as set forth in a binding agreement between
the Corporation and the other party to the transaction) the consideration
received for such Common Stock or deemed to have been received for the Common
Stock into which such Convertible Securities or such rights or options are
convertible would not have been less than the Market Price thereof, such shares
of Common Stock shall not be deemed to have been issued for less than the Market
Price of the Common Stock.
(10) Adjustment to Determination of Market Price. When making the
calculations and determinations described in clause (vi) (f) (1) through clause
(vi) (f) (9) hereof, the issuance to officers or key employees of the
Corporation and of its subsidiaries of shares of Common Stock or warrants,
options or rights for Common Stock issued pursuant to any instruments or
agreements or plans, or shares issuable to employees under employee stock
purchase plans, shall not be taken into account.
(g) Liquidating Dividends; Purchase Rights. (i) In case at any
time after the date hereof the Corporation shall declare a dividend upon the
shares of Common Stock of any class payable otherwise than in shares of Common
Stock or Convertible Securities, otherwise than out of consolidated earnings or
consolidated earned surplus (determined in accordance with generally accepted
accounting principles, but excepting quarterly Common Stock dividends at the
rate of $.05 per share or increases therein out of consolidated net income of
the Corporation determined in accordance with generally accepted accounting
principles for the period from the end of the last fiscal year to the date of
the most recent consolidated quarterly financial statements of the Corporation
as at the time of the declaration of the dividend), and otherwise than in the
securities to which the provisions of clause (ii) below apply, the Corporation
shall pay over to each holder of Series B Preferred Stock, upon conversion
thereof on or after the dividend payment date, the securities and other property
(including cash) which such holder would have received (together with all
distributions thereon) if such holder had converted the Series B Preferred Stock
held by it on the record date fixed in connection with such dividend, and the
Corporation shall take whatever steps are necessary or appropriate to keep in
reserve at all times such securities and other property as shall be required to
fulfill its obligations hereunder in respect of the shares issuable upon the
exercise or conversion of all the Series B Preferred Stock.
(ii) If at any time or from time to time on or after the date hereof,
the Corporation shall grant, issue or sell any options or rights (other than
Convertible Securities) to purchase stock, warrants, securities or other
property pro rata to the holders of Common Stock of all classes ("Purchase
Rights"), and if the holder shall be entitled to an adjustment pursuant to
clause (vi) (f) above, then in lieu of such adjustment, and if deemed by the
Board of Directors to be not materially adverse to the interests of the holders
of Series B Preferred Stock, the Corporation shall reserve for distribution to
holders of Series B Preferred Stock upon conversion of the same and upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such holder could have acquired if such holder had held the number of shares of
Common Stock issuable upon conversion of such Series B Preferred Stock
immediately prior to the time or times at which the Corporation granted, issued
or sold such Purchase Rights.
(h) Subdivision or Combination of Stock. In case the
Corporation shall at any time subdivide its outstanding shares of Common Stock
into a greater number of shares, the Conversion Price in effect immediately
prior to such subdivision shall be proportionately reduced, and conversely, in
case the outstanding shares of Common Stock of the Corporation shall be combined
into a smaller number of shares, the Conversion Price in effect immediately
prior to such combination shall be proportionately increased.
(i) Changes in Common Stock. If any capital reorganization or
reclassification of the capital stock of the Corporation, or consolidation or
merger of the Corporation with another Corporation, or the sale, transfer or
other disposition of all or substantially all of its properties to another
Corporation, shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger, sale, transfer or other disposition,
lawful and adequate provision shall be made whereby each holder of Series B
Preferred Stock shall thereafter have the right to purchase and receive upon the
basis and upon the terms and conditions herein specified and in lieu of the
shares of the Common Stock of the Corporation immediately theretofore issuable
upon conversion of the Series B Preferred Stock, such shares of stock,
securities or properties as may be issuable or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such Common Stock immediately theretofore issuable upon
conversion of the Series B Preferred Stock had such reorganization,
reclassification, consolidation, merger, sale, transfer or other disposition not
taken place, and in any such case appropriate provisions shall be made with
respect to the rights and interests of each holder of Series B Preferred Stock
to the end that the provisions hereof (including without limitation provisions
for adjustment of the Conversion Price) shall thereafter be applicable, as
nearly equivalent as may be practicable in relation to any shares of stock,
securities or properties thereafter deliverable upon the exercise thereof. The
Corporation shall not effect any such consolidation, merger, sale, transfer or
other disposition, unless prior to or simultaneously with the consummation
thereof the successor corporation (if other than the Corporation) resulting from
such consolidation or merger or the corporation purchasing or otherwise
acquiring such properties shall assume, by written instrument executed and
mailed or delivered to the holders of Series B Preferred Stock at the last
address of such holders appearing on the books of the Corporation, the
obligation to deliver to such holders such shares of stock, securities or
properties as, in accordance with the foregoing provisions, such holders may be
entitled to acquire. The above provisions of this subparagraph shall similarly
apply to successive reorganizations, reclassifications, consolidations, mergers,
sales, transfers, or other dispositions.
(j) Certain Events. If any event occurs as to which in the opinion of
the Board of Directors of the Corporation the other provisions of this clause
(vi) are not strictly applicable or if strictly applicable would not fairly
protect the conversion rights of the holders of the Series B Preferred Stock in
accordance with the essential intent and principles of such provisions, then
such Board of Directors shall appoint a firm of independent certified public
accountants (which may be the regular auditors of the Corporation) of recognized
national standing, which shall give their opinion upon the adjustment, if any,
on a basis consistent with such essential intent and principles, necessary to
preserve, without dilution, the rights of the holders of the Series B Preferred
Stock. Upon receipt of such opinion by the Board of Directors, the Corporation
shall forthwith make the adjustments described therein; provided, however, that
no such adjustment shall have the effect of increasing the Conversion Price as
otherwise determined pursuant to this clause (vi) except in the event of a
combination of shares of the type contemplated in clause (vi)(h) and then in no
event to an amount larger than the Conversion Price as adjusted pursuant to
clause (vi) (h).
(k) Prohibition of Certain Actions. The Corporation will not (i)
authorize or issue, or agree to authorize or issue, any shares of its capital
stock of any class preferred as to dividends or as to the distribution of assets
upon voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation unless the rights of the holders thereof shall be limited to a fixed
sum or percentage of par value in respect of participation in dividends and in
the distribution of such assets, or (ii), except in accordance with clause
(vi)(b), take any action which would result in any adjustment of the Conversion
Price if the total number of shares of Common Stock issuable after such action
upon conversion of all of the Series B Preferred Stock would exceed the total
number of shares of Common Stock then authorized by the Corporation's Charter.
(l) Stock to be Reserved. Except as otherwise provided in clause
(vi) (b) hereof, the Corporation will at all times reserve and keep available
out of its authorized Common Stock, solely for the purpose of issue upon the
conversion of Series B Preferred Stock as herein provided, such number of shares
of Common Stock as shall then be issuable upon the conversion of all outstanding
Series B Preferred Stock, and the Corporation will maintain at all times all
other rights and privileges sufficient to enable it to fulfill all its
obligations hereunder. The Corporation covenants that all shares of Common Stock
which shall be so issuable shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, free from preemptive or similar rights on
the part of the holders of any shares of capital stock or securities of the
Corporation, and without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action as may
be requisite to assure that the par value, if any, per share of the Common Stock
is at all times equal to or less than the then effective Conversion Price. The
Corporation will use its best efforts to take all such action as may be
necessary to assure that such shares of Common Stock may be so issued without
violation by the Corporation of any applicable law or regulation, or of any
requirements of any domestic securities exchange upon which the Common Stock may
be listed.
(m) Registration and Listing of Common Stock. If any shares of Common
Stock required to be reserved for purposes of conversion of Series B Preferred
Stock hereunder require registration with or approval of any governmental
authority under any Federal or state law (other than the Securities Act of 1933
or any state "blue sky" law) before such shares may be issued upon conversion,
the Corporation will, at its expense and as expeditiously as possible, use its
best efforts to cause such shares to be duly registered or approved, as the case
may be. If and so long as the Common Stock is listed on any national securities
exchange, the Corporation will, at its expense, use its best efforts to obtain
promptly and maintain the approval for listing on each such exchange upon
official notice of issuance, of shares of Common Stock issuable upon conversion
of the then outstanding Series B Preferred Stock and maintain the listing of
such shares after their issuance; and the Corporation will also use its best
efforts to list on such national securities exchange, to register under the
Securities Exchange Act of 1934 and to maintain such listing of, any other
securities that at any time are issuable upon conversion of the Series B
Preferred Stock, if and at the time that any securities of the same class shall
be listed on such national securities exchange by the Corporation.
(n) Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Preferred Stock or of any shares of
Common Stock issued or issuable upon the conversion of any Series B Preferred
Stock in any manner which interferes with the timely conversion of such Series B
Preferred Stock.
(o) Statement of Adjustment of Conversion Price. Whenever the
Conversion Price shall be adjusted as provided in clause (vi) (f) above, the
Corporation shall forthwith file at its office a statement, signed by its
independent certified public accountants, showing in detail the facts requiring
such adjustment and the Conversion Price that shall be in effect after such
adjustment. The Corporation shall also cause a copy of such statement to be sent
by certified mail, return receipt requested, to each holder of shares of Series
B Preferred Stock to such holder's address appearing on the Corporation's
records. Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the provisions of
clause (vi) (p) below.
(p) Notice. In the event the Corporation shall propose to take
any action of the types described in clause (vi)(f) above, the Corporation shall
give notice to each holder of shares of Series B Preferred Stock, in the manner
set forth in clause (vi) (o) above, which notice shall specify the record date,
if any, (or the method of determining the same) with respect to any such action
and the date (or the method of determining the same) on which such action is to
take place. Such notice shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the Conversion
Price and the number, kind or class of shares or other securities or property
which shall be deliverable or purchasable upon the occurrence of such action or
deliverable upon conversion of shares of Series B Preferred Stock. In the case
of any action which would require the fixing of a record date, such notice shall
be given at least 20 days prior to the date so fixed, and in case of all other
action, such notice shall be given at least 30 days prior to the taking of such
proposed action.
(q) Taxes. The Corporation shall pay all documentary, stamp or
other transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Corporation upon conversion of any shares of Series B
Preferred Stock.
THIRD: The terms of the 11% Preferred Stock are as follows:
(i) Designation and Amount. The designation of the Series of
Preferred Stock described in clause (ii) of Article First hereof shall be
"11% Preferred Stock" (the "11% Preferred Stock"). The number of shares of
11% Preferred Stock shall initially be 1,000.
(ii) Dividends. (a) Rate, etc. The holders of shares of 11% Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors out of the funds legally available therefor, annual dividends from the
date of issue thereof at the rate of $1,100.00 per share, calculated on the
basis of a 360-day year of 12 30-day months, accruing on a daily basis, payable
quarterly, in arrears, on each Dividend Payment Date in each year commencing on
the first Dividend Payment Date subsequent to the issuance of any shares of such
11% Preferred Stock. Such dividends shall be cumulative with respect to each
share from the date of original issuance, whether or not earned or declared.
(b) Rank, etc. The 11% Preferred Stock shall rank on a parity
with the Corporation's $4.10 Series A Convertible Exchangeable Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and any other Parity Stock as
to dividends and upon liquidation. Unless full cumulative dividends on all
outstanding shares of 11% Preferred Stock or any other class of Parity Stock
have been paid or are contemporaneously declared and paid (or declared and a sum
sufficient for the payment thereof is set apart for such payment), the
Corporation will not (1) declare or pay any dividend on the Common Stock of the
Corporation or on any other class of Junior Stock or make any payment on account
of, or set apart money for, a sinking or other analogous fund for the purchase,
redemption or other retirement of, any Junior Stock or make any distribution in
respect thereof, either directly or indirectly and whether in cash or property
or in obligations or shares of the Corporation (other than in shares of Junior
Stock) or (2) purchase any shares of 11% Preferred Stock or Parity Stock (except
for consideration payable in Junior Stock) or redeem fewer than all of the
shares of 11% Preferred Stock or Parity Stock then outstanding. Unless and until
all dividends accrued and payable but unpaid on the 11% Preferred Stock and any
Parity Stock at the time outstanding have been paid in full, all dividends
declared by the Corporation upon such 11% Preferred Stock or Parity Stock shall
be declared pro rata with respect to all 11% Preferred Stock and Parity Stock
then outstanding, so that the amounts of any dividends declared on the 11%
Preferred Stock and such Parity Stock shall in all cases bear to each other the
same ratio that, at the time of such declaration, all accrued and payable but
unpaid dividends on the 11% Preferred Stock and such other Parity Stock,
respectively, bear to each other.
(iii) Liquidation. (a) Preference on Liquidation. In the event of any
liquidation, dissolution or winding up of the affairs of the Corporation (any or
all of such events, a "liquidation"), whether voluntary or involuntary, the
holders of shares of 11% Preferred Stock then outstanding shall be entitled,
pari passu as if members of a single class of securities with the holders of
other Parity Stock, to be paid out of the assets of the Corporation, before any
payment shall be made to the holders of the Junior Stock or the holders of any
other capital stock of the Corporation, an amount equal to $10,000 per share of
such 11% Preferred Stock plus an amount equal to the dividends accrued and
unpaid thereon to the payment date.
(b) Insufficient Assets. If, upon any liquidation of the
Corporation, the assets of the Corporation are insufficient to pay the holders
of shares of the Parity Stock then outstanding the full amounts to which they
shall be entitled, such assets shall be distributed to the holders of the Parity
Stock pro rata in proportion to the amounts to which they shall be entitled.
(c) Rights of Other Holders. In the event of any liquidation,
after payment shall have been made to the holders of the 11% Preferred Stock and
other Parity Stock of all preferential amounts to which they shall be entitled,
the holders of shares of Junior Stock and other capital stock of the Corporation
shall receive such amounts as to which they are entitled by the terms thereof.
(d) Consolidation, Merger or Sale of Assets. Neither a consolidation
or merger of the Corporation with or into any other Corporation, nor a sale or
transfer of all or substantially all of the Corporation's assets for cash or
securities nor a statutory share exchange in which stockholders of the
Corporation may participate shall be considered a liquidation, dissolution or
winding-up of the Corporation within the meaning of this clause (iii).
(iv) Redemption. (a) Mandatory Redemption. On June 1, 2001,
the Corporation will redeem the 11% Preferred Stock then outstanding at a
redemption price equal to $10,000 per share, together with dividends accrued
thereon to the date of redemption.
(b) Optional Redemption. The 11% Preferred Stock shall be
subject to redemption, at the option of the Corporation, in whole or from time
to time in part, at any time on or after June 1, 1994 at a redemption price
equal to $10,000 per share, plus the Redemption Premium (as hereinafter
defined), together with dividends accrued thereon to the date of redemption.
For the purposes of this clause (iv) "Redemption Premium" shall
mean:
Period
June 1, 1994 to May 31, 1995 $770
June 1, 1995 to May 31, 1996 660
June 1, 1996 to May 31, 1997 550
June 1, 1997 to May 31, 1998 440
June 1, 1998 to May 31, 1999 330
June 1, 1999 to May 31, 2000 220
June 1, 2000 to May 31, 2001 110
June 1, 2001 and thereafter 0
(v) Voting Rights. Excepting the rights specified below in this
clause (v), the holders of the 11% Preferred Stock shall not be entitled to any
voting rights. For purposes of this clause (v) and in any case where holders of
the 11% Preferred Stock are entitled to vote upon any matter together with
holders of Parity Stock as a single class, holders of 11% Preferred Stock have a
number of votes per share determined by dividing $10,000 by $50.00.
(a) Voting Rights Relating to Unpaid Dividends. (1) If on the date
used to determine stockholders of record for any meeting of stockholders for the
election of directors, accrued dividends on the shares of 11% Preferred Stock or
any Parity Stock shall not have been paid in an aggregate amount equal to or
greater than two quarterly dividends on the shares of 11% Preferred Stock or
such Parity Stock at the time outstanding, then, and in any such event, the
number of Directors then constituting the entire Board of Directors of the
Corporation shall automatically be increased by two Directors and the holders of
shares of 11% Preferred Stock and the holders of shares of Parity Stock, voting
together as a single class, shall be entitled at such meeting to fill such newly
created directorships. Such right to vote as a single class to elect two
Directors shall, when vested, continue until all dividends in default on the
shares of 11% Preferred Stock and such Parity Stock, as the case may be, shall
have been paid in full and, when so paid, such right to elect two Directors
separately as a class shall cease, subject, always, to the same provisions for
the vesting of such right to elect two Directors separately as a class in the
case of future dividend defaults.
(2) So long as any shares of 11% Preferred Stock are outstanding
the number of Directors of the Corporation shall at all times be such that the
exercise, by the holders of shares of 11% Preferred Stock and the holders of
shares of Parity Stock, of the right to elect Directors under the circumstances
provided in paragraph (1) of this subclause (a) will not contravene any
provisions of the Maryland General Corporation Law or the Charter of the
Corporation.
(3) Directors elected pursuant to paragraph (1) of this subclause (a)
shall serve until the earlier of (A) the next annual meeting of the stockholders
of the Corporation and the election (by the holders of shares of 11% Preferred
Stock and Parity Stock) and qualification of their respective successors or (B)
the date upon which all dividends in default on the shares of 11% Preferred
Stock and such Parity Stock shall have been paid in full. Directors elected
pursuant to paragraph (1) of this subclause (a) may be removed by, and shall not
be removed except by, the vote of the holders of record of the outstanding
shares of 11% Preferred Stock and Parity Stock, voting together as a single
class without regard to Series, at a meeting of the stockholders, or the holders
of shares of 11% Preferred Stock and Parity Stock, called for that purpose. If,
prior to the end of the term of any Director elected as aforesaid, a vacancy in
the office of such Director shall occur during the continuance of a default in
dividends on the shares of 11% Preferred Stock or such Parity Stock by reason
other than removal, such vacancy shall be filled for the unexpired term by the
appointment by the remaining director elected as aforesaid of a new Director for
the unexpired term of such former Director.
(b) Additional Capital Stock, etc. The Corporation shall not, without
the affirmative consent or approval of the holders of shares representing at
least 66- 2/3% of the 11% Preferred Stock and Parity Stock then outstanding,
voting as a single class (such consent or approval to be given by written
consent in lieu of a meeting or by vote at a meeting called for such purpose for
which notice shall have been given to the holders of the 11% Preferred Stock and
Parity Stock): (i) authorize the issuance of any new, or increase the authorized
number of shares of any existing, class of capital stock of the Corporation
which would be senior or superior as to dividends and upon liquidation to the
11% Preferred Stock, (ii) increase the number of shares of Preferred Stock
authorized in the charter or create any other class of stock (but not any other
series of Preferred Stock) ranking on a parity with the 11% Preferred Stock,
Series B Preferred Stock and Parity Stock as to dividends and upon liquidation,
(iii) reissue any shares of 11% Preferred Stock that have been redeemed or (iv)
take any action to cause any amendment, alteration or repeal of any of the
provisions of the Corporation's Charter that would materially adversely affect
the rights of holders of 11% Preferred Stock.
(vi) Exchange for Depositary Shares. The shares of 11% Preferred Stock
shall be subject to exchange, in whole or in part, at the option of the holder
thereof exercisable at any time and from time to time in part, upon 30 days
written notice to the Corporation specifying the number of shares of 11%
Preferred Stock to be so exchanged. The Corporation shall accept deposit of such
shares and hold them in trust for the benefit of the holders making such deposit
and shall deliver to such holders in exchange therefor depositary shares of the
Corporation (the "Depositary Shares") of equal aggregate liquidation value to
the shares of 11% Preferred Stock delivered for deposit, each such Depositary
Share having a liquidation value of $25.00. On each Dividend Payment Date with
respect to the 11% Preferred Stock, upon any redemption thereof, and upon any
liquidation, dissolution or winding-up of the Corporation, the holders of each
Depositary Share shall be paid, from the proceeds of any such dividend,
redemption or payment upon liquidation, dissolution or winding-up payable with
respect to the shares of 11% Preferred Stock so deposited, the portion of such
proceeds allocable to the Depositary Shares held by such holder.
IN WITNESS WHEREOF, USF&G Corporation has caused these presents to be
signed in its name and on its behalf by its Chairman of the Board and President
and witnessed by its Secretary on May 31, 1991.
WITNESS: USF&G Corporation
WILLIAM F. SPLIEDT By: NORMAN P. BLAKE, JR.---------------------
Secretary Chairman of the Board and President
THE UNDERSIGNED, Chairman of the Board and President of USF&G
Corporation, who executed on behalf of the Corporation Articles Supplementary of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles Supplementary to be the
corporate act of said Corporation and hereby certifies that the matters and
facts set forth herein with respect to the authorization and approval thereof
are true in all material respects under the penalties of perjury.
/s/NORMAN P. BLAKE, JR
Norman P. Blake, Jr. Chairman of the Board and President
ARTICLES SUPPLEMENTARY
$5.00 SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
USF&G CORPORATION
USF&G CORPORATION, a Maryland corporation, having its principal office in
Baltimore City, Maryland (the "Corporation"), hereby certifies to the Maryland
State Department of Assessments and Taxation that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by Article SEVENTH of the Charter of the Corporation, the
Board of Directors has duly divided and classified 3,800,000 shares of the
Preferred Stock of the Corporation into a series designated $5.00 Series C
Cumulative Convertible Preferred Stock and has provided for the issuance of such
series.
SECOND: The terms of the $5.00 Series C Cumulative Convertible Preferred Stock
are as follows:
(1) Designation and Amount.
The designation of said series of the Preferred Stock shall be "$5.00
Series C Cumulative Convertible Preferred Stock" (the "Series C Preferred
Stock"). The number of shares of Series C Preferred Stock shall initially be
3,800,000, subject to increase or decrease by action of the Board of Directors
effectuated by further Articles Supplementary.
(2) Dividends.
(a) The holders of record of Series C Preferred Stock, on such respective
dates as shall be determined by the Board of Directors in advance of the payment
of each dividend provided for herein, shall be entitled to receive, as and when
declared by the Board of Directors out of assets of the Corporation which are by
law available for the payment of dividends, cumulative preferential cash
dividends, at the rate of $5.00 per share per annum payable quarterly on January
31, April 30, July 31, and October 31 of each year, commencing on July 31, 1991
(each such day being hereinafter called a "dividend date" and each quarterly
period ending on a dividend date being hereinafter called a "dividend period"),
which dividends on each share of Series C Preferred Stock shall accrue from the
date of issue thereof. Each such dividend shall be payable to the holders of
record as they appear on the stock books of the Corporation on such record
dates, not exceeding forty-five (45) days preceding the payment dates thereof,
as shall be fixed by the Board of Directors of the Corporation. Dividends on the
Series C Preferred Stock for any period greater or less than a full dividend
period shall be computed on the basis of a 360-day year consisting of twelve
30-day months. Dividends on the Series C Preferred Stock for each full dividend
period shall be computed by dividing the annual dividend rate by four.
(b) Dividends on the Series C Preferred Stock shall be cumulative,
whether or not in any dividend period or periods there shall be funds of the
Corporation legally available for the payment of such dividends or whether or
not earned or declared.
(c) Accumulations of dividends on any shares of Series C Preferred Stock
shall not bear interest.
(d) All dividends declared on the Series C Preferred Stock for any
dividend period and on any class or series of stock ranking on a parity with the
Series C Preferred Stock as to dividends and upon liquidation ("Parity Stock")
shall be declared pro rata so that the amounts of dividends per share declared
for such period on the Series C Preferred Stock and on any classes of Parity
Stock that were outstanding during such period shall in all cases bear to each
other the same proportions that the respective dividend rates of such stock for
such period bear to each other.
(e) The Corporation shall not (i) declare or pay dividend or other
distribution with respect to any junior stock of the Corporation or (ii) redeem
or set apart funds for the purchase or redemption of any junior stock through a
sinking fund or otherwise, unless (A) all cumulating and accrued dividends with
respect to the Series C Preferred Stock have been paid or funds have been set
apart for payment of such dividends and (B) sufficient funds have been set apart
for the payment of the dividend for the current dividend period with respect to
the Series C Preferred Stock.
(f) As used herein the term "dividends" does not include dividends
payable solely in shares of junior stock, or rights to holders of junior stock
to subscribe for or purchase any junior stock.
(g) As used herein, the phrase "set apart" in respect of the payment of
dividends or redemption prices shall require deposit of any funds in a bank or
trust company in a separate deposit account maintained for the benefit of the
holders of the Series C Preferred Stock.
(h) As used herein, the term "junior stock" means the Common Stock and
any other class of capital stock of the Corporation now or hereafter issued and
outstanding which ranks junior in priority to the Series C Preferred Stock as to
dividends and upon liquidation.
(i) As used herein, the term "cumulating or accrued" in respect of
dividends with respect to the Series C Preferred Stock means an amount equal to
dividends thereon at the rate of $5.00 per share per annum, computed from the
date on which such dividends commenced to cumulate, and cumulating on each
dividend date thereafter, less the aggregate amount of all dividends previously
paid with respect to such Series C Preferred Stock.
(3) Liquidation Preference.
(a) The amount which the holders of Series C Preferred Stock shall be
entitled to receive in the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, shall be $50 per share
plus an amount per share equal to all dividends cumulating or accrued and unpaid
thereon to the date of such liquidation, dissolution or winding up, and no more.
(b) Upon any such liquidation, dissolution or winding up, the
preferential amounts with respect to the Series C Preferred Stock and any class
of Parity Stock shall be distributed pro rata in accordance with the aggregate
preferential amounts of the Series C Preferred Stock and such other classes of
Parity Stock, if any, out of or to the extent of the net assets of the
Corporation legally available for such distribution, before any distributions
are made with respect to any junior stock.
(c) Neither a consolidation or merger of the Corporation with or into any
corporation nor a merger of any other corporation with or into the Corporation,
nor a sale or transfer of all or substantially all of the Corporation's assets
for cash or securities nor a statutory share exchange in which stockholders of
the Corporation may participate shall be considered a liquidation or dissolution
or winding-up of the Corporation within the meaning of this paragraph (3).
(4) Redemption.
(a) At any time on and after June 13, 1994 all the Series C Preferred
Stock, or any part thereof, at any time outstanding, may be redeemed by the
Corporation, at any time or from time to time at its election expressed by
resolution of the Board of Directors upon not less than 30 nor more than 60 days
previous notice to the holders of record of the Series C Preferred Stock to be
redeemed, given by (i) registered or certified mail, postage prepaid, and (ii)
the single publication of such notice in the The Wall Street Journal or similar
daily financial publication of general circulation in the United States, at the
redemption prices set forth below during the 12 month periods beginning on June
13 of the years shown below, in each case plus accrued and unpaid dividends to
the date fixed for redemption (the "redemption date").
Year Redemption
1994 $53.50
1995 53.00
1996 52.50
1997 52.00
1998 51.50
1999 51.00
2000 50.50
2001 and thereafter 50.00
(b) Any notice of redemption mailed to a holder of Series C Preferred
Stock at his address as the same appears on the books of the Corporation shall
be conclusively presumed to have been given whether or not the holder receives
the notice. Each such notice shall state the redemption date; the number of
shares of Series C Preferred Stock to be redeemed, and, if less than all shares
of Series C Preferred Stock held by such holder are to be redeemed, the number
of such shares to be redeemed from such holder and the fact that a new
certificate or certificates representing any unredeemed shares shall be issued
without cost to such holder; the redemption price applicable to the shares to be
redeemed; the place or places where such shares are to be surrendered; and that
dividends on shares to be redeemed shall cease to accrue and accumulate on the
redemption date. No defect in any such notice as to any shares of Series C
Preferred Stock shall affect the validity of the proceedings for the redemption
of any other shares of Series C Preferred Stock.
(c) The Corporation shall not give notice of redemption of Series C
Preferred Stock after the record date for the payment of any dividend on the
Common Stock payable for the dividend period in which the redemption date occurs
unless the record date for the payment of dividends on the Series C Preferred
Stock is the same as the record date for the payment of dividends on the Common
Stock.
(d) The Corporation may not purchase or redeem less than all of the
outstanding shares of Series C Preferred Stock and any other series of Parity
Stock unless all cumulating or accrued dividends with respect to the shares of
Series C Preferred Stock and any Parity Stock which shall not be so redeemed or
purchased have either been paid or set aside for payment.
(e) If less than all of the outstanding shares of Series C Preferred
Stock are to be redeemed, the redemption may be made either pro rata or by lot
or in some other equitable manner as may be prescribed by resolution of the
Board of Directors.
(f) Any shares of Series C Preferred Stock called for redemption
pursuant to this paragraph (4) shall not be deemed to be outstanding for the
purposes of voting, determining the total number of shares entitled to vote, or
payment of dividends thereon on or after the date on which the notice of
redemption is mailed to the holders thereof and a sum sufficient to redeem such
shares has been set apart for payment of the redemption price upon surrender of
the certificates therefor. Any money set apart for such payment which is not
required to redeem such shares because of conversions shall be promptly returned
to the Corporation. In addition, any money set apart for such payment which
remains unclaimed for a period of six years after the redemption date shall be
repaid to the Corporation upon the request of the Corporation as expressed by a
resolution of the Board of Directors. The holders of record of the shares so
called for redemption who have not made a claim against such moneys prior to
such repayment to the Corporation shall be deemed to be unsecured creditors of
the Corporation for an amount equivalent to the amount set apart for payment of
the redemption price and so repaid to the Corporation, but in no event shall any
such holder be entitled to any interest thereon. The Corporation shall be
entitled to receive any interest paid from time to time on the money so set
apart.
(5) Conversion.
(a) Subject to and upon compliance with the provisions of this paragraph
(5), the holder of a share of Series C Preferred Stock, shall have the right, at
his option, at any time after the issue date thereof, to convert such share into
that number of fully paid and nonassessable shares of Common Stock obtained by
dividing $50.00 by the Conversion Price and by surrender of such share so to be
converted, such surrender to be made in the manner provided in subparagraph (b)
of this paragraph (5); provided, however, that the right to convert shares
called for redemption pursuant to paragraph (4) shall terminate at the close of
business on the date fixed for such redemption, unless the Corporation shall
default in making payment of the amount payable upon such redemption.
(b) In order to exercise the conversion privilege, the holder of each
share of Series C Preferred Stock to be converted shall surrender the
certificate representing such share, duly endorsed or assigned to the
Corporation or in blank, at the office of the transfer agent for the Series C
Preferred Stock in the Borough of Manhattan, City of New York, or at the office
of any agent or agents of the Corporation as may be designated by the Board of
Directors (the "Transfer Agent") accompanied by written notice to the
Corporation that the holder thereof elects to convert the Series C Preferred
Stock. Unless the shares issuable on conversion are to be issued in the same
name as the name in which such share of Series C Preferred Stock is registered,
each share surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by the holder
or such holder's duly authorized attorney and an amount sufficient to pay any
transfer or similar tax (or evidence reasonably satisfactory to the Corporation
demonstrating that such taxes have been paid). In the event that some but not
all of the shares of the Series C Preferred Stock represented by certificates
surrendered by a holder are converted, the Corporation shall execute and deliver
to or on the order of the holder, at the expense of the Corporation, a new
certificate representing the number of shares of Series C Preferred Stock which
were not converted.
Upon conversion of the Series C Preferred Stock, (i) no payment shall be
made on account of any dividends cumulating or accrued and unpaid on such Series
C Preferred Stock to the conversion date, and (ii) no adjustment in the
conversion rate will be made on account of any such dividends. Notwithstanding
the foregoing, if any share of Series C Preferred Stock is converted after any
record date for the payment of a dividends on the Series C Preferred Stock but
before the due date for payment therefor then (i) such dividend shall be payable
on such due date to the record holder of such share on such record date, and
(ii) such share, when surrendered for conversion, shall be accompanied by
payment of an amount equal to the dividend payable on such due date on such
share (unless such share has been called for redemption prior to the due date
for payment therefor).
As promptly as practicable after the surrender of the certificates for
shares of Series C Preferred Stock as aforesaid, the Corporation shall issue and
shall deliver at such office to such holder, or on his written order, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such shares in accordance with the provisions of
this paragraph (5), and any fractional interest in respect of a share of Common
Stock arising upon such conversion shall be settled as provided in subparagraph
(c) of this paragraph (5).
Each conversion shall be deemed to have been effected immediately prior
to the close of business on the date on which the certificates for shares of
Series C Preferred Stock shall have been surrendered and such notice received by
the Corporation as aforesaid, and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become the holder or holders of
record of the shares represented thereby at such time on such date and such
conversion shall be at the Conversion Price in effect at such time on such date,
unless the stock transfer books of the Corporation shall be closed on that date,
in which event such person or persons shall be deemed to have become such holder
or holders of record at the opening of business on the next succeeding day on
which such stock transfer books are open, but such conversion shall be at the
Conversion Price in effect on the date upon which such shares shall have been
surrendered and such notice received by the Corporation. All shares of Common
Stock delivered upon conversions of the Series C Preferred Stock will upon
delivery be duly and validly issued and fully paid and nonassessable, free of
all liens and charges and not subject to any preemptive rights.
(c) No fractional shares or script representing fractions of shares of
Common Stock shall be issued upon conversion of the Series C Preferred Stock.
Instead of any fractional interest in a share of Common Stock which would
otherwise be deliverable upon the conversion of a share of Series C Preferred
Stock, the Corporation shall pay to the holder of such share an amount in cash
(computed to the nearest cent) based upon the last reported sales price (as
defined in subparagraph (d)(iv) of this paragraph (5)) of the Common Stock on
the date of conversion. If more than one share shall be surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
aggregate liquidation preference of the shares of Series C Preferred Stock so
surrendered.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) In case the Corporation shall after the issue date of the
Series C Preferred Stock (the "Issue Date") (A) pay a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (B) subdivide
its outstanding Common Stock into a greater number of shares, (C) combine its
outstanding Common Stock into a smaller number of shares or (D) issue any shares
of capital stock by reclassification of its Common Stock, the Conversion Price
in effect immediately prior thereto shall be adjusted so that the holder of any
share of Series C preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock and other shares of
capital stock, if appropriate, of the Corporation which such holder would have
owned or have been entitled to receive after the happening of any of the events
described above had such share been converted immediately prior to the happening
of such event or the record date therefor, whichever is earlier. An adjustment
made pursuant to this clause (i) shall become effective immediately after the
close of business on the record date in the case of a dividend or distribution
(except as provided in subparagraph (i) below) and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
(ii) In case the Corporation shall issue after the Issue Date rights
or warrants to all holders of Common Stock entitling them (for a period expiring
within 45 days after the record date mentioned below) to subscribe for or
purchase Common Stock at a price per share less than the then current market
price per share of Common Stock (as defined in clause (iv) below) at the record
date for the determination of shareholders entitled to receive such rights or
warrants, then in each such case the Conversion Price in effect immediately
prior thereto shall be adjusted to equal the price determined by multiplying (I)
the Conversion Price in effect immediately prior to the date of issuance of such
rights or warrants by (II) a fraction, the numerator of which shall be the sum
of (A) the number of shares of Common Stock outstanding on the record date for
the issuance of such rights or warrants and (B), the number of shares which the
aggregate proceeds from the exercise of such rights or warrants for Common Stock
would purchase at such current market price, and the denominator of which shall
be the sum of (A) the number of shares of Common Stock outstanding on such
record date and (B), the number of additional shares of Common Stock offered for
subscription or purchase. Such adjustment shall be made successively whenever
any such rights or warrants are issued, and shall become effective immediately
after such record date after the date of issuance thereof. In determining
whether any rights or warrants entitle the holders of Common Stock to subscribe
for or purchase shares of Common Stock at less than such current market price,
there shall be taken into account any consideration received by the Corporation
upon issuance and upon exercise of such rights or warrants, the value of such
consideration, if other than cash, to be determined by the Board of Directors.
(iii) In case the Corporation shall distribute to all holders of its
Common Stock any shares of capital stock of the Corporation (other than Common
Stock) or evidences of its indebtedness or assets (excluding cash dividends or
distributions paid from consolidated earnings or consolidated earned surplus of
the Corporation (determined in accordance with generally accepted accounting
principles, but excepting quarterly Common Stock dividends at the rate of $.05
per share or increases therein out of consolidated net income of the Corporation
determined in accordance with generally accepted accounting principles for the
period from the end of its most recent fiscal year to the date of the most
recent consolidated quarterly financial statements of the Corporation as at the
time of the declaration of the dividend (herein called "Normal Cash Dividends")
or rights or warrants to subscribe for or purchase any of its securities
(excluding those referred to in clause (ii) above) (any of the foregoing being
hereinafter in this clause (iii) called the "Securities"), then in each such
case, unless the Corporation elects to reserve shares or other units of such
Securities for distribution to the holders of the Series C Preferred Stock, upon
the conversion of the shares of Series C Preferred Stock, so that any such
holder converting shares of Series C Preferred Stock will receive upon such
conversion, in addition to the shares of the Common Stock to which such holder
is entitled, the amount and kind of such Securities which such holder would have
received if such holder had, immediately prior to the record date for the
distribution of the Securities, converted its shares of Series C Preferred Stock
into Common Stock (such election to be based upon a determination by the Board
of Directors that such reservation will not materially adversely affect the
interests of any holder of Series C Preferred Stock in any such reserved
Securities), the Conversion Price shall be adjusted so that the same shall equal
the price determined by multiplying (I) the Conversion Price in effect
immediately prior to the date of such distribution by (II) a fraction, the
numerator of which shall be the current market price per share (as defined in
clause (iv) below) of the Common Stock on the record date mentioned below less
the then fair market value (as determined by the Board of Directors, whose
determination shall, if made in good faith, be conclusive) of the portion of the
capital stock or assets or evidences of indebtedness so distributed or of such
rights or warrants applicable to one share of Common Stock, and the denominator
of which shall be the current market price per share (as defined in clause (iv)
below) of the Common Stock. Such adjustment shall become effective immediately,
except as provided in subparagraph (i) below, after the record date for the
determination of shareholders entitled to receive such distribution.
(iv) For the purpose of any computation under clause (ii) above,
the current market price per share of Common Stock on any date shall be deemed
to be the average of the last reported sales price for the thirty consecutive
Trading Days commencing forty-five Trading Days before the date in question. For
the purpose of any computation under clause (iii) above, the current market
price per share of Common Stock on any date shall be deemed to be the average of
the last reported sales price for the ten consecutive Trading Days preceding the
record date for the distribution with respect to which such computation relates.
The last reported sales price for each day shall be the last reported sales
price regular way on The New York Stock Exchange, or, if not reported for such
Exchange, on the Composite Tape, or, in case no such reported sale takes place
one such day, the average of the reported closing bid and asked quotations on
The New York Stock Exchange, or, if the Common Stock is not listed on such
Exchange or no such quotations are available, the average of the high bid and
low asked quotations in the over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or similar organization, or, if no such
quotations are available, the fair market value of such class of stock as
determined by a member firm of The New York Stock Exchange selected by the
Corporation.
(v) Notwithstanding anything in clauses (ii) or (iii) above, if such
rights or warrants shall by their terms provide for an increase or increases
with the passage of time or otherwise in the price payable to the Corporation
upon the exercise thereof, the Conversion Price upon any such increase becoming
effective shall forthwith be readjusted (but to no greater extent than
originally adjusted by reason of such issuance or sale) to reflect the same.
Upon the expiration or termination of such rights or warrants, if any such
rights or warrants shall not have been exercised, then the Conversion Price
thereof shall forthwith be readjusted and thereafter be the rate which it would
have been had an adjustment been made on the basis that the only rights or
warrants so issued or sold were those so exercised and they were issued or sold
for the consideration actually received by the Corporation upon such exercise,
plus the consideration, if any, actually received by the Corporation for the
granting of all such rights or warrants whether or not exercised. An adjustment
made pursuant to this clause (v) shall be made on the next Business Day
following the date on which any such issuance is made and shall be effective
immediately after the close of business on such date. For purposes of clauses
(ii) and (v), the aggregate consideration received by the Corporation in
connection with the issuance of rights or warrants shall be deemed to be equal
to the sum of the aggregate offering price (before deduction of underwriting
discounts or commissions and expenses payable to third parties) of all such
securities plus the minimum aggregate amount, if any, payable upon exercise of
such rights or warrants.
(vi) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least 1% in such
price; provided, however, that any adjustments which by reason of this
subparagraph (vi) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment; and provided, further, any adjustment
shall be required and made in accordance with the provisions of this paragraph
(5) (other than this clause (vi)) not later than such time as may be required in
order to preserve the tax-free nature of a distribution to the holders of shares
of Common Stock. All calculations under this paragraph (5) shall be made to the
nearest cent (with $.005 being rounded upward) or to the nearest 1/100 of a
share (with .005 of a share being rounded upward), as the case may be. Anything
in this subparagraph (d) to the contrary notwithstanding, the Corporation shall
be entitled, to the extent permitted by law, to make such reductions in the
Conversion Price, in addition to those required by this subparagraph (d), as it
in its discretion shall determine to be advisable in order that any stock,
dividends, subdivision of shares, distribution of rights or warrants to purchase
stock or securities, or a distribution of other assets (other than cash
dividends) hereafter made by the Corporation to its stockholders shall not be
taxable.
(e) Notwithstanding any other provision herein to the contrary, if any
Fundamental Change occurs, then the Conversion Price in effect will be adjusted,
in accordance with this subparagraph (e), immediately after such Fundamental
Change. In addition, in the event of a Common Stock Fundamental Change, each
share of Series C Preferred Stock shall be convertible solely into common stock
of the kind received by holders of Common Stock as the result of such Common
Stock Fundamental Change (the amount of such common stock to be determined in
accordance with this subparagraph (e)). The Corporation shall not consent or
agree to the occurrence of any Fundamental Change until the Corporation has
entered into an agreement with the successor or purchasing entity, as the case
may be, for the benefit of the holders of the Series C Preferred Stock, which
shall contain provisions which will enable the holders of the Series C Preferred
Stock to convert into the consideration received by holders of Common Stock at
the Conversion Price immediately after such Fundamental Change.
For purposes of calculating any adjustment to be made pursuant to the
preceding paragraph in the event of a Fundamental Change, immediately after such
Fundamental Change:
(A) in the case of a Non-Stock Fundamental Change, the Conversion Price
of the shares of Series C Preferred Stock shall become the lower of (a) the then
applicable Conversion Price (after giving effect to any adjustments required
pursuant to subparagraph (d) of this paragraph (5) and (b) the result obtained
by multiplying the greater of the Applicable Price or the then applicable
Reference Market Price by (i) if such Non-Stock Fundamental Change occurs on or
after June 13, 1994 a fraction of the numerator of which shall be $50.00 and the
denominator of which shall be the amount at which one share of Series C
Preferred Stock would be redeemed by the Corporation pursuant to paragraph (4)
if the redemption date were the date of such Non-Stock Fundamental Change (such
amount being the sum of the redemption price set forth in paragraph (4) and any
accrued and accumulated and unpaid dividends); and (ii) if such Non-Stock
Fundamental Change occurs prior to June 13, 1994 a fraction the numerator of
which shall be $50.00 and the denominator of which shall be the sum of the
relevant amount relating to one share of Series C Preferred Stock during the
twelve-month period beginning on June 13 in each of the following years within
which such Non-Stock Fundamental Change occurs plus any accrued and accumulated
and unpaid dividends:
Year Amount
1991 $55.00
1992 $54.50
1993 to and including June 12, 1994 $54.00
(B) in the case of a Common Stock Fundamental Change, the Conversion
Price shall be the then applicable Conversion Price after giving effect to any
adjustment required pursuant to subparagraph (d) of the paragraph (5) multiplied
by a fraction, the numerator of which is the Purchaser Stock Price and the
denominator of which is the Applied Price.
The provisions of this subparagraph (e) shall similarly apply to
successive Fundamental Changes.
(f) In case the Corporation shall be a party to any transaction
(including without limitation a merger, consolidation, sale of all or
substantially all of the Corporation's assets, liquidation or recapitalization
of the Common Stock and excluding any transaction as to which subparagraph d(i)
of this paragraph (5) applies, each of the foregoing being referred to as a
"Transaction"), in each case (except in the case of a Common Stock Fundamental
Change) as a result of which shares of Common Stock shall be converted into the
right to receive stock, securities or other property (including cash or any
combination thereof), each share of Series C Preferred Stock shall thereafter be
convertible into the kind and amount of shares of stock and other securities and
property receivable (including cash) upon the consummation of such Transaction
by a holder of that number of shares of Common Stock into which one share of
Series C Preferred Stock was convertible immediately prior to such Transaction
(but after giving effect to any adjustment required by subparagraph (e) of this
paragraph (5) if such Transaction constitutes a Fundamental Change). The
Corporation shall not be a party to any Transaction unless the terms of such
Transaction are consistent with the provisions of this subparagraph (f) and it
shall not consent or agree to the occurrence of any Transaction until the
Corporation has entered into an agreement with the successor or purchasing
entity, as the case may be, for the benefit of the holders of the Series C
Preferred Stock which will contain provisions enabling the holders of the Series
C Preferred Stock to convert into the consideration received by holders of
Common Stock at the Conversion Price immediately after such Transaction.
The provisions of this paragraph (f) shall similarly apply to successive
Transactions.
(g) If:
(i) the Corporation shall declare a dividend (or any other distribution)
on the Common Stock (other than in cash out of consolidated earnings or
consolidated earned surplus and Normal Cash Dividends);
(ii) the Corporation shall authorize the granting to the holders of the
Common Stock of rights or warrants to subscribe for or purchase any shares of
any class or any other rights or warrants; or
(iii) there shall be any reclassification of the Common Stock (other
than an event to which subparagraph (d)(i) of this paragraph (5) applies) or any
consolidation or merger to which the Corporation is a party and for which
approval of any stockholders of the Corporation is required, or the sale or
transfer of all or substantially all of the assets of the Corporation; or
(iv) there shall be any Fundamental Change; then the Corporation shall
cause to be filed with the Transfer Agent for the Series C Preferred Stock, and
shall cause to be mailed to the holders of shares of the Series C Preferred
Stock at their addresses as shown on the stock books of the Corporation, as
promptly as possible, but at least 15 days, prior to the applicable date
hereinafter specified, a notice stating (A) the date (or the manner of
determining the date) on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date (or the manner of determining the date) as of which the holders
of Common Stock of record to be entitled to such dividend, distribution or
rights or warrants are to be determined or (B) the date on which such
reclassification, consolidation, merger, sale, transfer or Fundamental Change is
expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or Fundamental Change.
Failure to give such notice or any defect therein shall not affect the legality
or validity of the proceedings described in this paragraph (5).
(h) Whenever the Conversion Price is adjusted, as herein provided, the
Corporation shall promptly file with any transfer agent for the Series C
Preferred Stock, an officers' certificate setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment. Promptly after delivery of such certificate, the Corporation
shall prepare a notice of such adjustment of the Conversion Price setting forth
the adjusted Conversion Price and the date on which such adjustment became
effective and shall mail such notice of such adjustment of the Conversion Price
to the holder of each share of Series C Preferred Stock at his last address as
shown on the stock books of the Corporation.
(i) In any case in which subparagraph (d) of this paragraph (5) provides that
an adjustment shall become effective immediately after a record date for an
event, the Corporation may defer until the occurrence of such event (A) issuing
to the holder of any share of Series C Preferred Stock, converted after such
record date and before the occurrence of such event the additional shares of
Common Stock issuable upon such conversion by reason of the adjustment required
by such event over and above the Common Stock issuable upon such conversion
before giving effect to such adjustment and (B) paying to such holder any amount
in cash in lieu of any fraction pursuant to subparagraph (c) of this paragraph
(5).
(j) For purposes of this paragraph (5), the number of shares of Common
Stock at any time outstanding shall not include any shares of Common Stock then
owned or held by or for the account of the Corporation.
(k) There shall be no adjustment of the Conversion Price in case of the
issuance of any stock of the Corporation in a reorganization, acquisition or
other similar transaction except as specifically set forth in this paragraph
(5). If any action or transaction would require adjustment of the Conversion
Price pursuant to more than one subparagraph of this paragraph (5), only one
adjustment shall be made and such adjustment shall be the amount of adjustment
which has the highest absolute value.
(l) In case the Corporation shall take any action affecting the Common
Stock, other than action described in this paragraph (5), which in the opinion
of the Board of Directors would materially adversely affect the conversion
rights of the holders of the shares of Series C Preferred Stock, the Conversion
Price for the Series C Preferred Stock may be adjusted, to the extent permitted
by law, in such manner, if any, and at such time, as the Board of Directors may
determine to be equitable in the circumstances. Failure of the Board of
Directors to provide for any such adjustment prior to the effective date of any
such action by the Corporation affecting the Common Stock shall be evidence that
such Board of Directors has determined that it is equitable to make no
adjustment in the circumstances.
(m) The Corporation covenants that it will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its authorized
but unissued shares of Common Stock, for the purpose of effecting conversion of
the Series C Preferred Stock, the full number of shares of Common Stock
deliverable upon the conversion of all outstanding shares of Series C Preferred
Stock not theretofore converted.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value (if any) of the shares of Common Stock
deliverable upon conversion of the Series C Preferred Stock, the Corporation
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully paid
and nonassessable shares of Common Stock at such adjusted Conversion Price.
The Corporation will endeavor to list the shares of Common Stock required
to be delivered upon conversion of the Series C Preferred Stock, prior to such
delivery, upon each national securities exchange, if any, upon which the
outstanding Common Stock is listed at the time of delivery.
(n) The Corporation will pay any and all documentary stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of shares of
Common Stock on conversion of the Series C Preferred Stock, pursuant hereto;
provided, however, that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issue or
delivery of shares of Common Stock in a name other than that of the holder of
the Series C Preferred Stock to be converted and no such issue or delivery shall
be made unless and until the person requesting such issue or delivery has paid
to the Corporation the amount of any such tax or has established, to the
reasonable satisfaction of the Corporation, that such tax has been paid.
(o) For purposes of this paragraph (5), the following terms shall have the
meanings indicated:
"Applicable Price" means (i) in the event of a Non-Stock Fundamental
Change in which the holders of the Common Stock receive only cash, the amount of
cash received by the holder of one share of Common Stock, and (ii) in the event
of any other Non-Stock Fundamental Change or any Common Stock Fundamental
Change, the average of the last reported sales price for the Common Stock during
the ten Trading Days immediately prior to the record date for the determination
of the holders of Common Stock entitled to receive cash, securities, property or
other assets in connection with such Non-Stock Fundamental Change and Common
Stock Fundamental Change, or, if there is no such record date, the date upon
which the holders of the Common Stock shall have the right to receive such cash,
securities, property or other assets.
"Common Stock Fundamental Change" means any Fundamental Change in which
more than 50% (by value as determined in good faith by the Board of Directors)
of the consideration received by holders of Common Stock consists of common
stock that for the consecutive ten Trading Days immediately prior to such
Fundamental Change has been admitted for listing or that immediately prior to
such Common Stock Fundamental Change has been admitted for listing subject to
notice of issuance on a national securities exchange or quoted on the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotations System.
"Conversion Price" shall mean the conversion price per share of Common
Stock for which the Series C Preferred Stock is convertible, as such Conversion
Price may be adjusted pursuant to paragraph (5). The initial conversion Price
will be $12.025 per share of Common Stock.
"Fundamental Change" means the occurrence of any transaction or event in
connection with a plan pursuant to which all or substantially all the Common
Stock shall be exchanged for, converted into, acquired for or constitute solely
the right to receive, cash or securities, property or other assets (whether by
means of an exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or otherwise); provided that, in
the case of a plan involving more than one such transaction or event, for
purposes of adjustment of the Conversion Price, such Fundamental Change shall be
deemed to have occurred when substantially all of the Common Stock of the
Corporation shall be exchanged for, converted into or acquired for or constitute
solely the right to receive cash, securities, property or other assets, but the
adjustment shall be based upon the consideration which the holders of Common
Stock received in such transaction or event as a result of which more than 50%
of the Common Stock of the Corporation shall have been exchanged for, converted
into or acquired for or constitute solely the right to receive cash, securities,
property or other assets; provided, further, however, that such term does not
include (i) any such transaction or event in which the Corporation and/or its
subsidiaries are the issuers of all the cash, securities, property or other
assets exchanged, acquired or otherwise issued in such transaction or event, or
(ii) any such transaction or event in which the holders of Common Stock receive
securities of an issuer other than the Corporation if, immediately following
such transaction or event, the holders of Common Stock hold a majority of the
securities having the power to vote normally in the election of directors of
such other issuer outstanding immediately following such transaction or other
event.
"Non-Stock Fundamental Change" means any Fundamental Change other than a
Common Stock Fundamental Change.
"Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the last reported sales price (determined as
set forth in subparagraph (d)(iv) of paragraph (5)) for the common stock, on the
principal national securities exchange or National Market System on which such
common stock is listed, received in such Common Stock Fundamental Change during
the ten days which such exchange or system is open immediately prior to the
record date for the determination of the holders of Common Stock entitled to
receive such common stock, or if there is no such record date, the date upon
which the holders of the Common Stock shall have the right to receive such
common stock; provided, however, if no such last reported sales price for the
common stock during the last ten days prior to the record date exists, then the
Purchaser Stock Price shall be set at a price determined in good faith by the
Board of Directors.
"Reference Market Price" shall initially mean $6.42 and in the event of
any adjustment to the Conversion Price pursuant to paragraph (5) other than an
adjustment pursuant to subparagraph (e) thereof, the Reference Market Price
shall also be adjusted so that the ratio of the Reference Market Price to the
Conversion Price after giving effect to any such adjustment shall always be the
same as the ratio of $6.42 to the initial Conversion Price (without regard to
any adjustment thereto).
"Trading Day" means a day on which the principal national securities
exchange or National Market System on which the Common Stock is listed or
admitted to trading (currently the New York Stock Exchange) is open for the
transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange or National Market System, a
Business Day.
(6) Voting Rights. Except as otherwise required by law, holders of shares
of Series C Preferred Stock shall have no voting rights; provided, however,
that:
(a)(i) If on the date used to determine stockholders of record for any
meeting of stockholders for the election of directors, accrued dividends on the
shares of Series C Preferred Stock or any Parity Stock shall not have been paid
in an aggregate amount equal to or greater than two quarterly dividends on the
shares of Series C Preferred Stock or such Parity Stock at the time outstanding,
then and in any such event, the number of Directors then constituting the entire
Board of Directors of the Corporation shall automatically be increased by two
Directors and the holders of shares of Series C Preferred Stock and the holders
of shares of Parity Stock, voting together as a single class, shall be entitled
at such meeting to fill such newly created directorships. Such right to vote as
a single class to elect two Directors shall, when vested, continue until all
dividends in default on the shares of Series C Preferred Stock and such Parity
Stock, as the case may be, shall have been paid in full and, when so paid, such
right to elect two Directors separately as a class shall cease, subject, always,
to the same provisions for the vesting of such right to elect two Directors
separately as a class in the case of future dividend defaults.
(ii) So long as any shares of Series C Preferred Stock are outstanding the
number of Directors of the Corporation shall at all times be such that the
exercise, by the holders of shares of Series C Preferred Stock and the holders
of shares of Parity Stock, of the right to elect Directors under the
circumstances provided in clause (i) of this subparagraph (a) will not
contravene any provisions of the Maryland General Corporation Law or the Charter
of the Corporation.
(iii) Directors elected pursuant to clause (i) of this subparagraph (a)
shall serve until the earlier of (x) the next annual meeting of the stockholders
of the Corporation and the election (by the holders of shares of Series C
Preferred Stock and Parity Stock) and qualification of their respective
successors or (y) the date upon which all dividends in default on the shares of
Series C Preferred Stock and such Parity Stock shall have been paid in full.
Directors elected pursuant to clause (i) of this subparagraph (a) may be removed
by, and shall not be removed except by, the vote of the holders of record of the
outstanding shares of Series C Preferred Stock and Parity Stock, voting together
as a single class without regard to series, at a meeting of the stockholders, or
the holders of shares of Series C Preferred Stock and Parity Stock, called for
that purpose. If, prior to the end of the term of any Director elected as
aforesaid, a vacancy in the office of such Director shall occur during the
continuance of a default in dividends on the shares of Series C Preferred Stock
or such Parity Stock by reason other than removal, such vacancy shall be filled
for the unexpired term by the appointment by the remaining Director elected as
aforesaid of a new Director for the unexpired term of such former Director.
(b)(i) Without the affirmative vote of the holders of at least two-thirds
of the votes entitled to be cast by the outstanding shares of Series C Preferred
Stock and Parity Stock, voting as a single class, the Corporation may not:
(A) amend any provision of the Charter which would materially adversely
affect the voting powers (except as such voting powers may be affected by the
authorization of any new series of Parity Stock having the same voting rights as
the Series C Preferred Stock or by the authorization of any other shares of any
class which are not entitled to vote together with the Series C Preferred Stock
in any class vote) or other rights or preferences of holders of the shares of
Series C Preferred Stock; or
(B) authorize or create any class of stock senior to the Series C Preferred
Stock as to dividends and upon liquidation.
(ii) Without the affirmative vote of the holders of at least a majority of the
votes entitled to be cast by the outstanding shares of Series C Preferred Stock
and Parity Stock, voting together as a single class, the Corporation may not
increase the number of shares of Preferred Stock authorized in Article SEVENTH
of the Charter or create any other class of capital stock of the Corporation
ranking on a parity with the Preferred Stock as to dividends and upon
liquidation.
(c) For purposes of this paragraph (6) each share of Series C Preferred Stock
shall have one vote per share. Parity Stock shall have the number of votes per
share specified in the Charter documents governing such Parity Stock.
(7) Reacquired Shares.
Shares of Series C Preferred Stock converted, redeemed, or otherwise
purchased or acquired by the Corporation shall be restored to the status of
authorized but unissued shares of Preferred Stock without designation as to
series.
(8) No Sinking Fund
Shares of Series C Preferred Stock are not subject to the operation of a
sinking fund.
IN WITNESS WHEREOF, USF&G Corporation has caused these presents to be
signed in its name and on its behalf by its Chairman of the Board and President
and witnessed by its Secretary on June 18, 1991.
Witness: USF&G CORPORATION
William F. Spliedt Norman P. Blake, Jr.
Secretary Chairman of the Board and President
[CORPORATE SEAL]
THE UNDERSIGNED, Chairman of the Board and President of USF&G Corporation,
who executed on behalf of the Corporation Articles Supplementary of which this
certificate is made a part, hereby acknowledges in the name and on behalf of
said Corporation the foregoing Articles Supplementary to be the corporate act of
said Corporation and hereby certifies that the matters and facts set forth
herein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
Norman P. Blake, Jr.
Chairman of the Board and President
USF&G CORPORATION
ARTICLES OF AMENDMENT
USF&G CORPORATION, a Maryland corporation, having its principal office in
Baltimore City, Maryland (which is hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended by deleting
Article SIXTH of the Articles of Incorporation in its entirety and in lieu
thereof substituting the following:
"SIXTH: The total number of shares of stock of all classes which
the Corporation has authority to issue is 252,000,000 having an aggregate par
value of $1,200,000,000 of which 240,000,000 shares of the par value of $2.50
per share, amounting in aggregate par value to $600,000,000, shall be Common
Stock, and 12,000,000 shares of the par value of $50.00 per share, amounting in
aggregate par value to $600,000,000, shall be Preferred Stock."
SECOND: (a) As of immediately before the amendment the total number of
shares of stock of all classes which the Corporation has authority to issue is
132,000,000, having an aggregate par value of $900,000,000, of which 120,000,000
shares of the par value of $2.50 per share, amounting to an aggregate par value
of $300,000,000, designated as Common Stock, and 12,000,000 shares of the par
value of $50.00 per share, amounting to an aggregate par value of $600,000,000,
designated as Preferred Stock.
(b) As amended, the total number of shares of stock of all classes which
the Corporation has authority to issue is 252,000,000, having an aggregate par
value of $1,200,000,000, of which 240,000,000 shares of the par value of $2.50
per share, amounting in aggregate par value to $600,000,000, shall be Common
Stock, and 12,000,000 shares of the par value of $50.00 per share, amounting in
aggregate par value to $600,000,000, shall be Preferred Stock.
(c) The aggregate par value of all shares having a par value is
$900,000,000 before the amendment and $1,200,000,000 as amended.
(d) The shares of stock of the Corporation are divided into classes, but
the descriptions of each class of stock of the Corporation are not changed by
the amendment.
THIRD: The foregoing amendment to the Charter of the Corporation has been
advised by the Board of Directors and approved by the stockholders of the
Corporation.
FOURTH: The foregoing amendment to the Charter of the Corporation shall be
effective at the time these Articles of Amendment are accepted for recording by
the Maryland State Department of Assessments and Taxation.
IN WITNESS WHEREOF, USF&G CORPORATION has caused these presents to be
signed in its name and on its behalf by its Chairman of the Board and President
and witnessed by its Secretary on May 7, 1992.
WITNESS: USF&G CORPORATION
By John F. Hoffen, Jr. Norman P. Blake, Jr.
Secretary Chairman of the Board and President
CERTIFICATION
THE UNDERSIGNED, Chairman of the Board and President of USF&G Corporation,
who executed on behalf of the Corporation the foregoing Articles of Amendment of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles of Amendment to be the
corporate act of said Corporation and hereby certifies that to the best of his
knowledge, information, and belief the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
Norman P. Blake, Jr.
Chairman of the Board and President
ARTICLES SUPPLEMENTARY
USF&G CORPORATION, a Maryland corporation, having its principal office
in Baltimore City, Maryland (which is hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: Pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Article Seventh of the Charter of the
Corporation, the Board of Directors has duly divided and classified 1,200,000
shares of the Preferred Stock of the Corporation into a series designated
"Junior Participating Preferred Stock" and designated and provided for the
issuance of such series pursuant to Articles Supplementary dated October 1, 1987
(the "Articles Supplementary - Junior Participating Preferred Stock") and filed
with the State Department of Assessment and Taxation of Maryland on October 7,
1987.
SECOND: Pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Section 1 of Article Second of the Articles
Supplementary - Junior Participating Preferred Stock, the Board of Directors has
unanimously adopted a resolution to authorize an increase in the number of
shares constituting such series.
THIRD: The terms of the Junior Participating Preferred Stock as set
forth by the Board of Directors are modified to increase the number of shares
constituting such series by deleting Section 1 of Article Second of the Articles
Supplementary - Junior Participating Preferred Stock in its entirety and in lieu
thereof substituting the following:
"1. Designation and Amount. The shares of
such series shall be designated as "Junior Participating Preferred Stock"
(the "Junior Preferred Stock") and the number of shares constituting such
series shall be 2,400,000, subject to increase or decrease by action of the
Board of Directors effectuated by further Articles Supplementary."
FOURTH: The foregoing Articles Supplementary shall be effective at the
time these Articles Supplementary are accepted for recording by the Maryland
State Department of Assessments and Taxation.
IN WITNESS WHEREOF, USF&G CORPORATION has caused these presents to be signed in
its name and on its behalf by its Chairman of the Board and President and
attested to by its Secretary on April 27, 1995.
ATTEST: USF&G CORPORATION
/s/ John F. Hoffen, Jr. /s/ Norman P. Blake, Jr.
Secretary Chairman of the Board
and President
CERTIFICATION
THE UNDERSIGNED, Chairman of the Board and President of USF&G
Corporation, who executed on behalf of the Corporation the foregoing Articles
Supplementary of which this certificate is made a part, hereby acknowledges in
the name and on behalf of said Corporation the foregoing Articles Supplementary
to be the corporate act of said Corporation and hereby certifies that to the
best of his knowledge, information, and belief the matters and facts set forth
therein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
/s/ Norman P. Blake, Jr.
Chairman of the Board
and President
ARTICLES SUPPLEMENTARY
Junior Participating Preferred Stock
OF
USF&G CORPORATION
USF&G CORPORATION, a Maryland corporation, having its principal office
in Baltimore City, Maryland (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by Article Seventh of the Charter of the Corporation, the
Board of Directors has previously duly divided and classified 2,400,000 shares
of the Preferred Stock of the Corporation into a series designated "Junior
Participating Preferred Stock" and has provided for the issuance of such series.
SECOND: No shares of Junior Participating Preferred Stock have been
issued, and the Board of Directors wishes to reclassify the Junior Participating
Preferred Stock.
THIRD: The Junior Participating Preferred Stock as previously divided
and classified by the Board of Directors are hereby reclassified as follows:
1. Designation and Amount. The shares of such series shall be
designated as "Junior Participating Preferred Stock" (the "Junior Preferred
Stock") and the number of shares constituting such series shall initially be
2,400,000, subject to increase or decrease by action of the Board of Directors
effectuated by further Articles Supplementary.
2. Dividends and Distributions.
(i) The holders of shares of Junior Preferred Stock, in
preference to the holders of Common Stock and of any other junior
stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose,
quarterly dividends payment in cash on the last day of March, June,
September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Junior Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) Twenty
dollars ($20.00) or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all
cash dividends, and 100 times the aggregate per share amount (payable
in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock of the Corporation or a
subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Junior Preferred Stock.
In the event the Corporation shall at any time after the date hereof
declare or pay any dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise)
into a greater or lesser number of shares of Common Stock, then in each
such case the amount to which holders of shares of Junior Preferred
Stock were entitled immediately prior to such event under clause (b) of
the preceding sentence shall be adjusted by multiplying such amount by
a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(ii) The Corporation shall declare a dividend or distribution
on the Junior Preferred Stock as provided in subparagraph (i) of this
paragraph 2 immediately after it declares a dividend or distribution on
the Common Stock (other than a dividend payable in shares of Common
Stock); provided that, in the event no dividend or distribution shall
have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date, a dividend of Twenty Dollars ($20.00)
per share on the Junior Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
(iii) Dividends shall begin to accrue and be cumulative on
outstanding shares of Junior Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares
of Junior Preferred Stock, unless the date of issue of such shares is
prior to the record date for the first Quarterly Dividend Payment Date,
in which case dividends on such shares shall begin to accrue from the
date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for
the determination of holders of shares of Junior Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Junior Preferred Stock in an amount less than the
total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Junior
Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than
60 days prior to the date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Junior Preferred
Stock shall have the following voting rights:
(i) Subject to the provision for adjustment hereinafter set
forth, each share of Junior Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation shall at
any time after the date hereof declare or pay any dividend on Common
Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock
(by reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Junior Preferred Stock were
entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(ii) Except as otherwise provided herein or by law, the
holders of shares of Junior Preferred Stock and the holders of shares
of Common Stock and any other capital stock of the Corporation having
general voting rights shall vote together as one class on all matters
submitted to a vote of shareholders of the Corporation.
(iii) (a) If on the date used to determine stockholders of
record for any meeting of stockholders for the election of directors,
accrued dividends on the shares of Junior Preferred Stock shall not
have been paid in an aggregate amount equal to or greater than six
quarterly dividends on the shares of Junior Preferred Stock at the time
outstanding, then, and in any such event, the number of Directors then
constituting the entire Board of Directors of the Corporation shall
automatically be increased by two Directors and the holders of shares
of Junior Preferred Stock and holders of any other shares of the
Preferred Stock of the Corporation then outstanding ranking on a parity
with the Junior Preferred Stock as to dividends and upon liquidation
("Parity Stock"), voting together as a single class, shall be entitled
at such meeting to fill such newly created directorships. Such right to
vote as a single class to elect two Directors shall, when vested,
continue until all dividends in default on the shares of Junior
Preferred Stock shall have been paid in full and, when so paid, such
right to elect two Directors separately as a class shall cease,
subject, always, to the same provisions for the vesting of such right
to elect two Directors separately as a class in the case of future
dividend defaults.
(b) So long as any shares of Junior Preferred Stock
are outstanding the number of Directors of the Corporation shall at all
times be such that the exercise, by the holders of shares of Junior
Preferred Stock and the holders of shares of Parity Stock, of the right
to elect Directors under the circumstances provided in paragraph (a) of
this subclause (iii) will not contravene any provision of the Maryland
General Corporation Law or the Charter of the Corporation.
(c) Directors elected pursuant to paragraph (a) of
this subclause (iii) shall serve until the earlier of (x) the next
annual meeting of the stockholders of the Corporation and the election
(by the holders of shares of Junior Preferred and Parity Stock) and
qualification of their respective successors or (y) the date upon which
all dividends in default on the shares of Junior Preferred and such
Parity Stock shall have been paid in full. Directors elected pursuant
to paragraph (a) of this subclause (iii) may be removed by, and shall
not be removed except by, the vote of the holders of record of the
outstanding shares of Junior Preferred and Parity Stock, voting
together as a single class without regard to series, at a meeting of
the stockholders, or the holders of shares of Junior Preferred and
Parity Stock, called for that purpose. If, prior to the end of the term
of any Director elected as aforesaid, a vacancy in the office of such
Director shall occur during the continuance of a default in dividends
on the shares of Junior Preferred Stock by reason other than removal,
such vacancy shall be filled for the unexpired term by the appointment
by the remaining Director elected as aforesaid of a new Director for
the unexpired term of such former Director.
(iv) Except as set forth herein, holders of Junior Preferred
Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with
holders of Common Stock and any other capital stock of the Corporation
having general voting rights as set forth herein) for taking any
corporate action.
4. Certain Restrictions.
(i) Whenever quarterly dividends or other dividends or
distributions payable on the Junior Preferred Stock as provided in
paragraph 2 of this Section are in arrears, thereafter and until all
accrued and unpaid dividends and distributions, whether or not
declared, on shares of Junior Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(a) declare or pay dividends on, make other
distributions on, or redeem or purchase or otherwise acquire
for consideration any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Junior Preferred Stock;
(b) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Junior Preferred Stock, except dividends
paid ratably on the Junior Preferred Stock and all such parity
stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all
such shares are then entitled;
(c) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior either as to
dividends or upon liquidation, dissolution or winding up) with
the Junior Preferred Stock, provided that the Corporation may
at any time redeem, purchase or otherwise acquire shares of
any such junior stock in exchange for shares of any stock of
the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Junior
Preferred Stock; or
(d) purchase or otherwise acquire for consideration
any shares of Junior Preferred Stock or Parity Stock, except
in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the
respective series or classes.
(ii) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under subparagraph (i) of
this paragraph 4, purchase or otherwise acquire such shares at such time and in
such manner.
5. Reacquired Shares. Any shares of Junior Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be classified again and reissued as part of a new series or class of
Preferred Stock to be created by the Board of Directors pursuant to its power
contained in the Charter, subject to the conditions and restrictions on issuance
set forth herein.
6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (a)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Junior Preferred Stock unless,
prior thereto, the holders of shares of Junior Preferred Stock shall have
received One Hundred Five dollars ($105) per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Junior
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of Common
Stock, or (b) to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Junior
Preferred Stock, except distributions made ratably on the Junior Preferred Stock
and all other such parity stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution or
winding up. In the event the Corporation shall at any time after the date hereof
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Junior Preferred Stock were
entitled immediately prior to such event under the proviso in clause (a) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
7. Consolidation, Merger, etc. In case the Corporation shall enter into
any consolidation, merger, share exchange, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case the shares
of Junior Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the date hereof declare or
pay any dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Junior
Preferred Stock shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
8. No Redemption. The shares of Junior Preferred Stock shall not be
redeemable.
9. Rank. The Junior Preferred Stock shall rank junior with respect to
payment of dividends and on liquidation to all other Preferred Stock of the
Corporation unless the terms of any other Preferred Stock specifically provide
that it shall rank junior to, or on a parity with, the Junior Preferred Stock.
10. Amendment. The Charter of the Corporation shall not be amended in
any manner that would materially alter or change the powers, preferences or
special rights of the Junior Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of two-thirds of the outstanding
shares of Junior Preferred Stock, voting together as a single class.
IN WITNESS WHEREOF, USF&G Corporation has caused these presents to be
signed in its name and on its behalf by its President and witnessed by its
Secretary on March 11, 1997.
WITNESS: USF&G CORPORATION
/s/John F. Hoffen, Jr. By: /s/ Norman P. Blake, Jr.
Secretary President
THE UNDERSIGNED, President of USF&G Corporation, who executed
on behalf of the Corporation Articles Supplementary of which this Certificate is
made a part, hereby acknowledges in the name and on behalf of said Corporation
the foregoing Articles Supplementary to be the corporate act of said Corporation
and hereby certifies that the matters and facts set forth herein with respect to
the authorization and approval thereof are true in all material respects under
the penalties of perjury.
/s/ Norman P. Blake, Jr.
<PAGE>
BY-LAWS
OF
USF&G CORPORATION
As Amended February 26, 1997
<PAGE>
USF&G CORPORATION
BY-LAWS
ARTICLE I.
STOCKHOLDERS
SECTION 1.01. Annual Meeting.
The Corporation shall hold an annual meeting of its
stockholders to elect directors and transact any other business within its
powers at such time and on such day within the month of May as shall be fixed by
the Board of Directors. Except as the Articles of Incorporation or statute
provides otherwise, any business may be considered at an annual meeting without
the purpose of the meeting having been specified in the notice. Failure to hold
an annual meeting does not invalidate the Corporation's existence or affect any
otherwise valid corporate acts.
SECTION 1.02. Special Meeting.
At any time in the interval between annual meetings, a special
meeting of the stockholders may be called by the Chairman of the Board or the
President or by a majority of the Board of Directors by vote at a meeting or in
writing (addressed to the Secretary of the Corporation) with or without a
meeting. Special meetings of the stockholders shall be called by the Secretary
at the request of stockholders only on the written request of stockholders
entitled to cast a majority of all the votes entitled to be cast at the meeting
and then only as may be required by law. A request for a special meeting shall
state the purpose of the meeting and the matters proposed to be acted on at it.
The Secretary shall inform the stockholders who make the request of the
reasonably estimated costs of preparing and mailing a notice of the meeting and,
on payment of these costs to the Corporation, notify each stockholder entitled
to notice of the meeting. Business transacted at all special meetings shall be
confined to the objects stated in the call.
SECTION 1.03. Place of Meetings
Meetings of stockholders shall be held at such place in the United
States as is set from time to time by the Board of Directors.
SECTION 1.04. Notice of Meetings; Waiver of Notice
Not less than ten (10) nor more than ninety (90) days before each
stockholders' meeting, the Secretary shall give written notice of the meeting to
each stockholder entitled to notice of the meeting. The notice shall state the
time and place of the meeting, and, if the meeting is a special meeting or
notice of the purpose is required by statute, the purpose of the meeting. Notice
is given to a stockholder when it is personally delivered to him, left at his
residence or usual place of business, or mailed to him at his address as it
appears on the records of the Corporation. Notwithstanding the foregoing
provisions, each person who is entitled to notice waives notice if he before or
after the meeting signs a waiver of the notice which is filed with the records
of stockholders' meetings, or is present at the meeting in person or by proxy.
Any meeting of stockholders, annual or special, may adjourn from time to time to
reconvene at the same or some other place, and no notice need be given of any
such adjourned meeting other than by announcement.
SECTION 1.05. Quorum; Voting.
Unless statute or the Articles of Incorporation provides otherwise, at
a meeting of stockholders the presence in person or by proxy of stockholders
entitled to cast a majority of all the votes entitled to be cast at the meeting
constitutes a quorum and a majority of all the votes cast at a meeting at which
a quorum is present is sufficient to approve any matter which properly comes
before the meeting. In the absence of a quorum, the stockholders present in
person or by proxy, by majority vote and without notice other than by
announcement, may adjourn the meeting from time to time until a quorum shall
attend. At any such adjourned meeting at which a quorum shall be present, any
business may be transacted at the meeting as originally notified. In the event
that at any meeting a quorum exists for the transaction of some business but
does not exist for the transaction of other business, the business as to which a
quorum is present may be transacted by the holders of stock present in person or
by proxy who are entitled to vote thereon.
SECTION 1.06. General Right to Vote; Proxies.
Unless the Articles of Incorporation provides for a greater or lesser
number of votes per share or limits or denies voting rights, each outstanding
share of stock, regardless of class, is entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. In all elections for
directors, each share of stock may be voted for as many individuals as there are
directors to be elected and for whose election the share is entitled to be
voted. A stockholder may vote the stock he owns of record either in person or by
written proxy signed by the stockholder or by his duly authorized attorney in
fact. Unless a proxy provides otherwise, it is not valid more than eleven (11)
months after its date.
SECTION 1.07. List of Stockholders.
At each meeting of stockholders, a full, true and complete list of all
stockholders entitled to vote at such meeting, showing the number and class of
shares held by each and certified by the transfer agent for such class or by the
Secretary, shall be furnished by the Secretary.
SECTION 1.08. Conduct of Voting.
At all meetings of stockholders, unless the voting is conducted by
judges, the proxies and ballots shall be received, and all questions touching
the qualification of votes and the validity of proxies and the acceptance or
rejection of votes shall be decided, by the chairman of the meeting. If demanded
by stockholders, present in person or by proxy, entitled to cast ten percent
(10%) in number of votes entitled to be cast, or if ordered by the chairman, the
vote upon any election or question shall be taken by ballot and, upon like
demand or order, the voting shall be conducted by two inspectors, in which event
the proxies and ballots shall be received, and all questions touching the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes shall be decided, by such inspectors. Unless so demanded or
ordered, no vote need be by ballot and voting need not be conducted by
inspectors. The stockholders at any meeting may choose an inspector or
inspectors to act at such meeting, and in default of such election the chairman
of the meeting may appoint an inspector or inspectors. No candidate for election
as a director at a meeting shall serve as an inspector thereat.
SECTION 1.09. Stockholder Proposals.
For any stockholder proposal to be presented in connection with an
annual meeting of stockholders of the Corporation after the Corporation's 1997
Annual Meeting of Stockholders, including any proposal relating to the
nomination of a director to be elected to the Board of Directors of the
Corporation, the stockholders must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice shall
be delivered to the Secretary at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided however, that no
notice other than the notice required under Regulation 14A of the Exchange Act
of 1934, as amended ("Regulation 14A") will be required if a stockholder's
proposal is included in the Corporation's proxy statement as a result of a
notice delivered in accordance with Regulation 14A; and provided further, that
in the event that the date of the annual meeting is advanced by more than 30
days or delayed by more than 60 days from such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the tenth day following
the day on which public announcement of the date of such meeting is first made.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and of the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made, (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of stock of the Corporation which
are owned beneficially and of record by such stockholders and such beneficial
owner.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.01. Function of Directors.
The business and affairs of the Corporation shall be managed under the
direction of its Board of Directors. All powers of the Corporation may be
exercised by or under authority of the Board of Directors, except as conferred
on or reserved to the stockholders by statute or by the Articles of
Incorporation or By-Laws.
SECTION 2.02. Number of Directors.
The Corporation shall have at least three (3) directors at all times;
provided that, if there is no stock outstanding, the number of directors may be
less than three (3) but not less than one (1), and, if there is stock
outstanding and so long as there are less than three (3) stockholders, the
number of directors may be less than three (3) but not less than the number of
stockholders. The Corporation shall have the number of directors provided in the
Articles of Incorporation until changed as herein provided. A majority of the
entire Board of Directors may alter the number of directors set by the Articles
of Incorporation to not exceeding twenty-five (25) nor less than the minimum
number then permitted herein, but the action may not affect the tenure of office
of any director.
SECTION 2.03. Election and Tenure of Directors.
At each annual meeting, the stockholders shall elect directors to hold
office until the next annual meeting and until their successors are elected and
qualify.
SECTION 2.04. Removal of Director.
The stockholders may remove any director, with or without cause, by the
affirmative vote of a majority of all the votes entitled to be cast for the
election of directors.
SECTION 2.05. Vacancy on Board.
The stockholders may elect a successor to fill a vacancy on the Board
of Directors which results from the removal of a director. A majority of the
remaining directors, whether or not sufficient to constitute a quorum, may fill
a vacancy on the Board of Directors which results from any cause except an
increase in the number of directors and a majority of the entire Board of
Directors may fill a vacancy which results from an increase in the number of
directors. A director elected by the Board of Directors to fill a vacancy serves
until the next annual meeting of stockholders and until his successor is elected
and qualifies. A director elected by the stockholders to fill a vacancy which
results from the removal of a director serves for the balance of the term of the
removed director.
SECTION 2.06. Regular Meetings.
After each meeting of stockholders at which a Board of Directors shall
have been elected, the Board of Directors so elected shall meet as soon as
practicable for the purpose of organization and the transaction of other
business; and in the event that no other time is designated by the stockholders,
the Board of Directors shall meet one hour after the time for such stockholders'
meeting or immediately following the close of such meeting, whichever is later,
on the day of such meeting. Such first regular meeting shall be held at any
place in or out of the State of Maryland as may be designated by the
stockholders, or in default of such designation at the place designated by the
Board of Directors for such first regular meeting, or in default of such
designation at the place of the holding of the immediately preceding meeting of
stockholders. No notice of such first meeting shall be necessary if held as
hereinabove provided. Any other regular meeting of the Board of Directors shall
be held on such date and at any place in or out of the State of Maryland as may
be designated from time to time by the Board of Directors.
SECTION 2.07. Special Meeting.
Special meetings of the Board of Directors may be called at any time by
the Chairman of the Board or the President or by a majority of the Board of
Directors by vote at a meeting, or in writing with or without a meeting. A
special meeting of the Board of Directors shall be held on such date and at any
place in or out of the State of Maryland as may be designated from time to time
by the Board of Directors. In the absence of such designation such meeting shall
be held at such place as may be designated in the call.
SECTION 2.08. Notice of Meeting.
Except as provided in Section 2.06, the Secretary shall give notice to
each director of each regular and special meeting of the Board of Directors. The
notice shall state the time and place of the meeting. Notice is given to a
director when it is delivered personally to him, left at his residence or usual
place of business, or sent by telegraph or telephone, at least twenty-four (24)
hours before the time of the meeting or, in the alternative by mail to his
address as it shall appear on the records of the Corporation, at least
seventy-two (72) hours before the time of the meeting. Unless the By-Laws or a
resolution of the Board of Directors provide otherwise, the notice need not
state the business to be transacted at or the purposes of any regular or special
meeting of the Board of Directors. No notice of any meeting of the Board of
Directors need be given to any director who attends, or to any director who, in
writing executed and filed with the records of the meeting either before or
after the holding thereof, waives such notice. Any meeting of the Board of
Directors, regular or special, may adjourn from time to time to reconvene at the
same or some other place, and no notice need be given of any such adjourned
meeting other than by announcement.
SECTION 2.09. Action by Directors.
Unless statute or the Articles of Incorporation or By-Laws require a
greater proportion, the action of a majority of the directors present at a
meeting at which a quorum is present is action of the Board of Directors.
Notwithstanding the foregoing, with respect to actions required to be taken by
the Board of Directors pursuant to the Corporation's Amended and Restated Rights
Agreement, a valid action of the Board of Directors shall be as set forth in the
Amended and Restated Rights Agreement. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business. In the
absence of a quorum, the directors present by a majority vote and without notice
other than by announcement may adjourn the meeting from time to time until a
quorum shall attend. At any such adjourned meeting at which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting as originally notified. Any action required or permitted to be taken at
a meeting of the Board of Directors may be taken without a meeting, if an
unanimous written consent which sets forth the action is signed by each member
of the Board and filed with the minutes of proceedings of the Board.
SECTION 2.10. Meeting by Conference Telephone.
Members of the Board of Directors may participate in a meeting by means
of a conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time. Participation
in a meeting by these means constitutes presence in person at a meeting.
SECTION 2.11. Compensation.
By resolution of the Board of Directors a fixed sum and expenses, if
any, for attendance at each regular or special meeting of the Board of Directors
or of committees thereof, and other compensation for their services as such or
on committees of the Board of Directors, may be paid to directors (excluding
directors who are officers of the Corporation). A director who serves the
Corporation in any other capacity also may receive compensation for such other
services, pursuant to a resolution of the directors.
SECTION 2.12. Advisory Directors.
The Board of Directors may appoint, from time to time, Advisory
Directors to provide advice to, and to serve as a resource for, the Board of
Directors and management. Such Advisory Directors shall serve solely at the
pleasure of the Board of Directors and may attend meetings of the Board of
Directors, or selected portions thereof; in an observer capacity on a regular or
selected basis as may be determined from time to time by the Board of Directors
or the Chairman of the Board. Advisory Directors shall not constitute members of
the Board of Directors for any purpose and accordingly shall not count towards a
quorum of the Board of Directors or have any vote with respect to any action
taken or required to be taken by the Board of Directors, or otherwise have any
responsibilities or rights of members of the Board. Advisory Directors may be
paid such fees and may be reimbursed for expenses incurred in connection with
attendance of regular or special meetings as the Board of Directors shall
authorize by resolution.
ARTICLE III.
COMMITTEES
SECTION 3.01. Committees.
The Board of Directors may appoint from among its members an Executive
Committee and other committees composed of one or more directors and delegate to
these committees any of the powers of the Board of Directors, except the power
to declare dividends on stock, elect directors, issue stock other than as
provided in the next sentence, recommend to the stockholders any action which
requires stockholder approval, amend the By-Laws, or approve any merger or share
exchange which does not require stockholder approval. If the Board of Directors
has given general authorization for the issuance of stock, a committee of the
Board, in accordance with that authorization or any stock option or other plan
or program adopted by the Board of Directors, may fix the terms of stock subject
to classification or reclassification and the terms on which any stock may be
issued, including all terms and conditions required or permitted to be
established or authorized by the Board of Directors.
SECTION 3.02. Procedure.
Each committee may fix rules of procedure for its business. A majority
of the members of a committee shall constitute a quorum for the transaction of
business and the act of a majority of those present at a meeting at which a
quorum is present shall be the act of the committee. The members of a committee
present at any meeting, whether or not they constitute a quorum, may appoint a
director to act in the place of an absent member. Any action required or
permitted to be taken at a meeting of a committee may be taken without a
meeting, if a unanimous written consent which sets forth the action is signed by
each member of the committee and filed with the minutes of the committee. The
members of a committee may conduct any meeting thereof by conference telephone
in accordance with the provisions of Section 2.10.
SECTION 3.03. Emergency.
In the event of a state of disaster of sufficient severity to prevent
the conduct and management of the affairs and business of the Corporation by its
directors and officers as contemplated by the Articles of Incorporation and the
By-Laws, any two (2) or more available members of the then incumbent Executive
Committee shall constitute a quorum of that Committee for the full conduct and
management of the affairs and business of the Corporation in accordance with the
provisions of Section 3.01. In the event of the unavailability, at such time, of
a minimum of two (2) members of the then incumbent Executive Committee, the
available directors shall elect an Executive Committee consisting of any two (2)
members of the Board of Directors, whether or not they be officers of the
Corporation, which two (2) members shall constitute the Executive Committee for
the full conduct and management of the affairs of the Corporation in accordance
with the foregoing provisions of this Section. This Section shall be subject to
implementation by resolution of the Board of Directors passed from time to time
for that purpose, and any provisions of the By-Laws (other than this Section)
and any resolutions which are contrary to the provisions of this Section or to
the provisions of any such implementary resolutions shall be suspended until it
shall be determined by any interim Executive Committee acting under this Section
that it shall be to the advantage of the Corporation to resume the conduct and
management of its affairs and business under all the other provisions of the
By-Laws.
ARTICLE IV.
OFFICERS
SECTION 4.01. Executive Officers.
The Corporation shall have a Chairman of the Board, who shall be a
director of the Corporation, a President, who shall be a director of the
Corporation, a Secretary and a Treasurer. It may also have one or more Vice
Presidents, one or more Assistant Vice Presidents, one or more Assistant
Secretaries and one or more Assistant Treasurers. A person may hold more than
one office in the Corporation but may not serve concurrently as both President
and Vice President of the Corporation.
SECTION 4.02. Chairman of the Board.
The Chairman of the Board shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are from time to time assigned to him by the
Board of Directors.
SECTION 4.03. President.
In the absence of the Chairman of the Board, the President shall
preside at all meetings of the stockholders and of the Board of Directors at
which he shall be present; he shall have charge and supervision of the assets
and affairs of the Corporation; he may sign and execute, in the name of the
Corporation, all authorized deeds, mortgages, bonds, contracts or other
instruments, except in cases in which the signing and execution thereof shall
have been expressly delegated to some other officer or agent of the Corporation;
and, in general, he shall perform all duties incident to the office of a
president of a corporation, and such other duties as are from time to time
assigned to him by the Board of Directors.
SECTION 4.04. Vice Presidents.
The Vice President or Vice Presidents, at the request of the President,
or in his absence, or during his inability to act, shall perform the duties and
exercise the functions of the President, and when so acting shall have the
powers of the President. If there be more than one Vice President, the Board of
Directors may determine which one or more of the Vice Presidents shall perform
any of such duties or exercise any of such functions, or if such determination
is not made by the Board of Directors, the President may make such
determination; otherwise any of the Vice Presidents may perform any of such
duties or exercise any of such functions. The Vice President or Vice Presidents
shall have such other powers and perform such other duties, and have such
additional descriptive designations in their titles (if any), as are from time
to time assigned to them by the Board of Directors or the President.
SECTION 4.05. Secretary.
The Secretary shall keep the minutes of the meetings of the
stockholders, of the Board of Directors and of any committees, in books provided
for the purpose; he shall see that all notices are duly given in accordance with
the provisions of the By-Laws or as required by law; he shall be custodian of
the records of the Corporation; he shall witness all documents on behalf of the
Corporation, the execution of which is duly authorized, see that the corporate
seal is affixed where such document is required to be under its seal, and, when
so affixed, may attest the same; and, in general, he shall perform all duties
incident to the office of a secretary of a corporation, and such other duties as
are from time to time assigned to him by the Board of Directors or the
President.
SECTION 4.06. Treasurer.
The Treasurer shall have charge of and be responsible for all funds,
securities, receipts and disbursements of the Corporation, and shall deposit, or
cause to be deposited, in the name of the Corporation, all moneys or other
valuable effects in such banks, trust companies or other depositories as shall,
from time to time, be selected by the Board of Directors; he shall render to the
President and to the Board of Directors, whenever requested, an account of the
financial condition of the Corporation; and, in general he shall perform all the
duties incident to the office of a treasurer of a corporation, and such other
duties as are from time to time assigned to him by the Board of Directors or the
President.
SECTION 4.07. Assistant Officers.
The Assistant Vice Presidents shall have such duties as are from time
to time assigned to them by the Board of Directors or the President. The
Assistant Secretaries shall have such duties as are from time to time assigned
to them by the Board of Directors or the Secretary. The Assistant Treasurers
shall have such duties as are from time to time assigned to them by the Board of
Directors or the Treasurer.
SECTION 4.08. Other Officers.
The Corporation may have such other officers as the Board of Directors
may from time to time deem desirable. Each such officer shall hold office for
such period and perform such duties as the Board of Directors, the President or
the committee or officer designated pursuant to Section 4.10 may prescribe.
SECTION 4.09. Compensation.
The Board of Directors shall have power to fix the salaries and other
compensation and remuneration, of whatever kind, of all officers of the
Corporation. It may authorize any committee or officer, upon whom the power of
appointing other officers may have been conferred, to fix the salaries,
compensation and remuneration of such subordinate officers.
SECTION 4.10. Election, Tenure and Removal of Officers.
The Board of Directors shall elect the officers. The Board of Directors
may from time to time authorize any committee or officer to appoint other
officers. An officer serves for one year and until his successor is elected and
qualifies. If the Board of Directors in its judgment finds that the best
interests of the Corporation will be served, it may remove any officer or agent
of the Corporation. The removal of an officer or agent does not prejudice any of
his contract rights. The Board of Directors (or any committee or officer
authorized by the Board of Directors) may fill a vacancy which occurs in any
office for the unexpired portion of the term.
ARTICLE V.
STOCK
SECTION 5.01. Certificates of Stock.
Each stockholder is entitled to certificates which represent and
certify the shares of stock he holds in the Corporation. Each stock certificate
shall include on its face the name of the corporation that issues it, the name
of the stockholder or other person to whom it is issued, and the class of stock
and number of shares it represents. It shall be in such form, not inconsistent
with law or with the Articles of Incorporation, as shall be approved by the
Board of Directors or any officer or officers designated for such purpose by
resolution of the Board of Directors. Each stock certificate shall be signed by
the Chairman of the Board, the President, or a Vice President, and countersigned
by the Secretary, an Assistant Secretary, the Treasurer, or an Assistant
Treasurer. Each certificate may be sealed with the actual corporate seal or a
facsimile of it or in any other form and the signatures may be either manual or
facsimile signatures. A certificate is valid and may be issued whether or not an
officer who signed it is still an officer when it is issued.
SECTION 5.02. Transfers.
The Board of Directors shall have power and authority to make such
rules and regulations as it may deem expedient concerning the issue, transfer
and registration of certificates of stock; and may appoint transfer agents and
registrars thereof. The duties of transfer agent and registrar may be combined.
SECTION 5.03. Record Date and Closing of Transfer Books.
The Board of Directors may set a record date or direct that the stock
transfer books be closed for a stated period for the purpose of making any
proper determination with respect to stockholders, including which stockholders
are entitled to notice of a meeting, vote at a meeting, receive a dividend, or
be allotted other rights. The record date may not be more than ninety (90) days
before the date on which the action requiring determination will be taken; the
transfer books may not be closed for a period longer than twenty (20) days; and,
in the case of a meeting of stockholders, the record date of the closing of the
transfer books shall be at least ten (10) days before the date of the meeting.
SECTION 5.04. Stock Ledger.
The Corporation shall maintain a stock ledger which contains the name
and address of each stockholder and the number of shares of stock of each class
which the stockholder holds. The stock ledger may be in written form or in any
other form which can be converted within a reasonable time into written form for
visual inspection. The original or a duplicate of the stock ledger shall be kept
at the offices of a transfer agent for the particular class of stock, within or
without the State of Maryland, or, if none, at the principal office or the
principal executive offices of the Corporation in the State of Maryland.
SECTION 5.05. Lost Stock Certificates.
The Board of Directors of the Corporation may determine the conditions
for issuing a new stock certificate in place of one which is alleged to have
been lost, stolen, or destroyed, or the Board of Directors may delegate such
power to any officer or officers of the Corporation. In their discretion, the
Board of Directors or such officer or officers may refuse to issue such new
certificate save upon the order of some court having jurisdiction in the
premises.
ARTICLE VI.
FINANCE
SECTION 6.01. Checks, Drafts, Etc.
All checks, drafts and orders for the payment of money, notes and other
evidences of indebtedness, issued in the name of the Corporation, shall, unless
otherwise provided by resolution of the Board of Directors, be signed by the
President, a Vice President or an Assistant Vice President and countersigned by
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary.
SECTION 6.02. Annual Statement of Affairs.
There shall be prepared annually a full and correct statement of the
affairs of the Corporation, to include a balance sheet and a financial statement
of operations for the preceding fiscal year. The statement of affairs shall be
submitted at the annual meeting of the stockholders and, within twenty (20) days
after the meeting, placed on file at the Corporation's principal office.
SECTION 6.03. Fiscal Year.
The fiscal year of the Corporation shall be the twelve calendar months
period ending December 31 in each year, unless otherwise provided by the Board
of Directors.
ARTICLE VII.
SUNDRY PROVISIONS
SECTION 7.01. Books and Records.
The Corporation shall keep correct and complete books and records of
its accounts and transactions and minutes of the proceedings of its stockholders
and Board of Directors and of any executive or other committee when exercising
any of the powers of the Board of Directors. The books and records of the
Corporation may be in written form or in any other form which can be converted
within a reasonable time into written form for visual inspection. Minutes shall
be recorded in written form but may be maintained in the form of a reproduction.
SECTION 7.02. Corporate Seal.
The Board of Directors shall provide a suitable seal, bearing the name
of the Corporation, which shall be in the charge of the Secretary. The Board of
Directors may authorize one or more duplicate seals and provide for the custody
thereof.
SECTION 7.03. Bonds.
The Board of Directors may require any officer, agent or employee of
the Corporation to give a bond to the Corporation, conditioned upon the faithful
discharge of his duties, with one or more sureties and in such amount as may be
satisfactory to the Board of Directors.
SECTION 7.04. Voting Upon Shares in Other Corporations.
Stock of other corporations or associations, registered in the name of
the Corporation, may be voted by the President, a Vice President, or a proxy
appointed by either of them. The Board of Directors, however, may by resolution
appoint some other person to vote such shares, in which case such person shall
be entitled to vote such shares upon the production of a certified copy of such
resolution.
SECTION 7.05. Mail.
Any notice or other document which is required by these By-Laws to be
mailed shall be deposited in the United States mails, postage prepaid.
SECTION 7.06. Execution of Documents.
A person who holds more than one office in the Corporation may not act
in more than one capacity to execute, acknowledge, or verify an instrument
required by law to be executed, acknowledged, or verified by more than one
officer.
SECTION 7.07. Amendments.
Subject to the special provisions of Section 2.02, any and all
provisions of these By-Laws may be altered, amended, repealed, or added to by a
majority vote of a quorum at any regular or special meeting of the stockholders
or of the Board of Directors.
SECTION 7.08. Charter Documents.
For the purpose of these By-Laws the term "Articles of Incorporation"
includes all charter documents.
AMENDED AND RESTATED
TRUST AGREEMENT
among
USF&G CORPORATION,
as Depositor,
THE BANK OF NEW YORK,
as Property Trustee,
THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee,
Dated as of December 24, 1996
USF&G CAPITAL I
TABLE OF CONTENTS
Page
ARTICLE I
Defined Terms
Section 1.1. Definitions 1
ARTICLE II.
Continuation of the Trust
Section 2.1. Name 11
Section 2.2. Office of the Delaware Trustee; Principal
Place of Business 12
Section 2.3. Initial Contribution of Trust Property;
Organizational Expenses 12
Section 2.4. Issuance of the Capital Securities 12
Section 2.5. Issuance of the Common Securities; Subscription
and Purchase of Debentures 12
Section 2.6. Declaration of Trust 13
Section 2.7. Authorization to Enter into Certain Transactions 13
Section 2.8. Assets of Trust 17
Section 2.9. Title to Trust Property 17
ARTICLE III.
Payment Account
Section 3.1. Payment Account 17
ARTICLE IV.
Distributions; Redemption
Section 4.1. Distributions 17
Section 4.2. Redemption 19
Section 4.3. Subordination of Common Securities 21
Section 4.4. Payment Procedures 22
Section 4.5. Tax Returns and Reports 22
Section 4.6. Payment of Taxes, Duties, Etc. of the Trust 22
Section 4.7. Payments under Indenture or Pursuant to
Direct Actions 22
ARTICLE V.
Trust Securities Certificates
Section 5.1. Initial Ownership 23
Section 5.2. The Trust Securities Certificates 23
Section 5.3. Execution and Delivery of Trust Securities
Certificates 24
Section 5.4. Book-Entry Capital Securities 24
Section 5.5. Registration of Transfer and Exchange of
Capital Securities Certificates; Restricted
Capital Securities Legends 26
Section 5.6. Mutilated, Destroyed, Lost or Stolen Trust
Securities Certificates 30
Section 5.7. Persons Deemed Securityholders 30
Section 5.8. Access to List of Securityholders' Names
and Addresses 30
Section 5.9. Maintenance of Office or Agency 31
Section 5.10. Appointment of Paying Agent 31
Section 5.11. Ownership of Common Securities by Depositor 31
Section 5.12. Notices to Clearing Agency 32
Section 5.13. Rights of Securityholders 32
ARTICLE VI.
Acts of Securityholders; Meetings; Voting
Section 6.1. Limitations on Voting Rights 34
Section 6.2. Notice of Meetings 35
Section 6.3. Meetings of Capital Securityholders 35
Section 6.4. Voting Rights 36
Section 6.5. Proxies, etc 36
Section 6.6. Securityholder Action by Written Consent 36
Section 6.7. Record Date for Voting and Other Purposes 37
Section 6.8. Acts of Securityholders 37
Section 6.9. Inspection of Records 38
ARTICLE VII.
Representations and Warranties
Section 7.1. Representations and Warranties of the Property
Trustee and the Delaware Trustee 38
Section 7.2. Representations and Warranties of Depositor 39
ARTICLE VIII.
The Trustees; the Administrators
Section 8.1. Certain Duties and Responsibilities 40
Section 8.2. Certain Notices 41
Section 8.3. Certain Rights of Property Trustee 42
Section 8.4. Not Responsible for Recitals or Issuance of
Securities 44
Section 8.5. May Hold Securities 44
Section 8.6. Compensation; Indemnity; Fees 44
Section 8.7. Corporate Property Trustee Required; Eligibility
of Trustees and Administrators 46
Section 8.8. Conflicting Interests 46
Section 8.9. Co-Trustees and Separate Trustee 46
Section 8.10. Resignation and Removal; Appointment of Successor 48
Section 8.11. Acceptance of Appointment by Successor 49
Section 8.12. Merger, Conversion, Consolidation or Succession
to Business 50
Section 8.13. Preferential Collection of Claims Against
Depositor or Trust 50
Section 8.14. Reports by Property Trustee 51
Section 8.15. Reports to the Property Trustee 51
Section 8.16. Evidence of Compliance with Conditions Precedent 51
Section 8.17. Number of Trustees 52
Section 8.18. Delegation of Power 52
Section 8.19. Appointment of Administrators 52
ARTICLE IX.
Termination, Liquidation and Merger
Section 9.1. Termination Upon Expiration Date 53
Section 9.2. Early Termination 53
Section 9.3. Termination 53
Section 9.4. Liquidation 53
Section 9.5. Mergers, Consolidations, Amalgamations or
Replacements of the Trust 55
ARTICLE X.
Miscellaneous Provisions
Section 10.1. Limitation of Rights of Securityholders 56
Section 10.2. Amendment 56
Section 10.3. Separability 58
Section 10.4. Governing Law 58
Section 10.5. Payments Due on Non-Business Day 58
Section 10.6. Successors 58
Section 10.7. Headings 59
Section 10.8. Reports, Notices and Demands 59
Section 10.9. Agreement Not to Petition 59
Section 10.10. Trust Indenture Act; Conflict with Trust
Indenture Act 60
Section 10.11. Acceptance of Terms of Trust Agreement,
Guarantee and Indenture 61
EXHIBIT A - Certificate of Trust
EXHIBIT B - Certificate Depository Agreement
EXHIBIT C - Common Securities Certificate
EXHIBIT D - Agreement as to Expenses and Liabilities
EXHIBIT E-1 - Capital Securities Certificate (Book-Entry)
EXHIBIT E-2 - Capital Securities Certificate
EXHIBIT F - Restricted Securities Certificate
EXHIBIT G - Unrestricted Securities Certificate
AMENDED AND RESTATED TRUST AGREEMENT, dated as of December 24, 1996, among
(i) USF&G Corporation, a Maryland corporation (including any successors or
assigns, the "Depositor"), (ii) The Bank of New York, a New York banking
corporation, as property trustee (in such capacity, the "Property Trustee" and,
in its separate corporate capacity and not in its capacity as Property Trustee,
the "Bank"), and (iii) The Bank of New York (Delaware), a Delaware corporation
duly organized and existing under the laws of the State of Delaware, as Delaware
trustee (the "Delaware Trustee") (the Property Trustee and the Delaware Trustee
referred to collectively as the "Trustees"), (iv) the Administrators, as
hereinafter defined, and (v) the several Holders, as hereinafter defined.
W i t n e s s e t h :
Whereas, the Depositor, the Property Trustee and the Delaware Trustee have
heretofore duly declared and established a business trust pursuant to the
Delaware Business Trust Act by entering into that certain Trust Agreement, dated
as of December 28, 1995, as amended by Amendment No. 1 dated as of December 10,
1996 (the "Original Trust Agreement"), and by the execution and filing by the
Delaware Trustee with the Secretary of State of the State of Delaware of the
Certificate of Trust, filed on December 28, 1995, attached as Exhibit A; and
Whereas, the Depositor and the Trustees desire to amend and restate the
Original Trust Agreement in its entirety as set forth herein to provide for,
among other things, (i) the issuance of the Common Securities by the Trust to
the Depositor, (ii) the issuance and sale of the Capital Securities by the Trust
pursuant to the Purchase Agreement, (iii) the acquisition by the Trust from the
Depositor of all of the right, title and interest in the Debentures and (iv) the
appointment of the Administrators;
Now Therefore, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, each party, for the benefit of the
other parties and for the benefit of the Securityholders, hereby amends and
restates the Original Trust Agreement in its entirety and agrees as follows:
ARTICLE I
Defined Terms
Section 1.1. Definitions.
For all purposes of this Trust Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to them
in this Article and include the plural as well as the singular;
(b) all other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) unless the context otherwise requires, any reference to an "Article"
or a "Section" refers to an Article or a Section, as the case may be, of this
Trust Agreement; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision.
"Act" has the meaning specified in Section 6.8.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or a given period, the amount of Additional Interest (as
defined in the Indenture) paid by the Depositor on a Like Amount of Debentures
for such period.
"Additional Sums" has the meaning specified in Section 10.6 of the
Indenture.
"Administrators" means each of J. Kendall Huber, John F. Hoffen, Jr., and
Toby Slodden solely in such Person's capacity as Administrator of the Trust
formed and continued hereunder and not in such Person's individual capacity, or
such Administrator's successor in interest in such capacity, or any successor
appointed as herein provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Book-Entry Capital Security, the rules and procedures of the
Clearing Agency for such Book-Entry Capital Security, in each case to the extent
applicable to such transaction and as in effect from time to time.
"Bank" has the meaning specified in the preamble to this Trust Agreement.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction in the
premises judging such Person a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjudication or
composition of or in respect of such Person under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law, or appointing
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of such Person or of any substantial part of its property or ordering
the winding up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive days; or
(b) the institution by such Person of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law, or the
consent by it to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or similar official) of
such Person or of any substantial part of its property, or the making by it of
an assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due and its willingness
to be adjudicated a bankrupt, or the taking of corporate action by such Person
in furtherance of any such action.
"Bankruptcy Laws" has the meaning specified in Section 10.9.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Depositor to have been duly adopted by the
Depositor's Board of Directors, or such committee of the Board of Directors or
officers of the Depositor to which authority to act on behalf of the Board of
Directors has been delegated, and to be in full force and effect on the date of
such certification, and delivered to the Trustees.
"Book-Entry Capital Securities Certificate" means a Capital
Securities Certificate evidencing ownership of Book-Entry Capital
Securities.
"Book-Entry Capital Security" means a Capital Security, the ownership and
transfers of which shall be made through book entries by a Clearing Agency as
described in Section 5.4.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day
on which banking institutions in the City of New York are authorized or required
by law or executive order to remain closed, or (c) a day on which the Property
Trustee's Corporate Trust Office or the Corporate Trust Office of the Debenture
Trustee is closed for business.
"Capital Security" means an undivided beneficial interest in the assets of
the Trust, having a Liquidation Amount of $1,000 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Capital Securities Certificate" means a certificate evidencing ownership
of Capital Securities, substantially in the form attached as Exhibit E-1 or E-2.
"Certificate Depository Agreement" means the agreement among the Trust,
the Depositor and DTC, as the initial Clearing Agency, dated as of the Closing
Date, relating to the Trust Securities Certificates, substantially in the form
attached as Exhibit B, as the same may be amended and supplemented from time to
time.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. DTC
will be the initial Clearing Agency.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means the Time of Delivery, which date is also the date of
execution and delivery of this Trust Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, as amended,
or, if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Security" means an undivided beneficial interest in the assets of
the Trust, having a Liquidation Amount of $1,000 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Common Securities Certificate" means a certificate evidencing ownership
of Common Securities, substantially in the form attached as Exhibit C.
"Corporate Trust Office" means (i) when used with respect to the Property
Trustee, the principal corporate trust office of the Property Trustee located in
New York, New York which on the date of this Trust Agreement is 101 Barclay
Street, Floor 21W, New York, New York 10286, and (ii) when used with respect to
the Debenture Trustee, its Corporate Trust Office as defined in the Indenture.
"Debenture Event of Default" means an "Event of Default" as defined in the
Indenture.
"Debenture Redemption Date" means, with respect to any Debentures to be
redeemed under the Indenture, the date fixed for redemption under the Indenture.
"Debenture Trustee" means The Bank of New York, a New York banking
corporation and any successor thereto.
"Debentures" means the aggregate principal amount of the Depositor's
8 1/2% Junior Subordinated Deferrable Interest Debentures, Series A, issued
pursuant to the Indenture.
"Definitive Capital Securities Certificates" means either or both (as the
context requires) of (a) Capital Securities Certificates issued as Book-Entry
Capital Securities Certificates as provided in Section 5.2 or 5.4 substantially
in the form set forth in Exhibit E-1 and (b) Capital Securities Certificates
issued in certificated, fully registered form as provided in Section 5.2, 5.4 or
5.5, substantially in the form set forth in Exhibit E-2.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. C. (ss.) 3801, et seq., as it may be amended from time to time.
"Delaware Trustee" means the Person identified as the "Delaware Trustee"
in the preamble to this Trust Agreement solely in its capacity as Delaware
Trustee of the Trust formed and continued hereunder and not in its individual
capacity, or its successor in interest in such capacity, or any successor
trustee appointed as herein provided.
"Depositor" has the meaning specified in the preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 4.1(a).
"Distributions" means amounts payable in respect of the Trust Securities
as provided in Section 4.1.
"DTC" means The Depository Trust Company.
"Early Termination Event" has the meaning specified in Section 9.2.
"Event of Default" means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) the occurrence of a Debenture Event of Default; or
(b) default by the Trust in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period of 30
days; or
(c) default by the Trust in the payment of any Redemption Price of any
Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any material respect, of any
covenant or warranty of the Trustees in this Trust Agreement (other than a
covenant or warranty a default in the performance or breach of which is dealt
with in clause (b) or (c) above) and continuation of such default or breach for
a period of 60 days after there has been given, by registered or certified mail,
to the defaulting Trustee or Trustees by the Holders of at least 25% in
aggregate Liquidation Amount of the Outstanding Capital Securities a written
notice specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or
(e) the occurrence of a Bankruptcy Event with respect to the Property
Trustee and a successor Property Trustee not being appointed within 90 days
thereof.
"Expense Agreement" means the Agreement as to Expenses and Liabilities
between the Depositor and the Trust, substantially in the form attached as
Exhibit D, as amended from time to time.
"Expiration Date" has the meaning specified in Section 9.1.
"Guarantee" means the Guarantee Agreement executed and delivered by the
Depositor and The Bank of New York, as trustee, contemporaneously with the
execution and delivery of this Trust Agreement, for the benefit of the holders
of the Capital Securities, as amended from time to time.
"Indenture" means the Junior Subordinated Indenture, dated as of December
24, 1996, between the Depositor and the Debenture Trustee, as trustee, as
amended or supplemented from time to time.
"Initial Purchasers means Goldman Sachs & Co., Merrill Lynch & Co., Lehman
Brothers and Legg Mason Wood Walker, Incorporated.
"Institutional Accredited Investor" means an institutional accredited
investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to the principal amount of
Debentures to be contemporaneously redeemed in accordance with the Indenture,
the proceeds of which will be used to pay the Redemption Price of such Trust
Securities, and (b) with respect to a distribution of Debentures to Holders of
Trust Securities in connection with a dissolution or liquidation of the Trust,
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the Holder to whom such Debentures are distributed.
"Liquidation Amount" means the stated amount of $1,000 per Trust Security.
"Liquidation Date" means the date on which Debentures are to be
distributed to Holders of Trust Securities in connection with a termination and
liquidation of the Trust pursuant to Section 9.4(a).
"Liquidation Distribution" has the meaning specified in Section 9.4(d).
"1940 Act" means the Investment Company Act of 1940, as amended.
"Officers' Certificate" means a certificate signed by the Chairman and
Chief Executive Officer, President or a Vice President, and by the Treasurer, an
Assistant Treasurer, the Controller, the Secretary or an Assistant Secretary, of
the Depositor, and delivered to the appropriate Trustee. One of the officers
signing an Officers' Certificate given pursuant to Section 8.16 shall be the
principal executive, financial or accounting officer of the Depositor. Any
Officers' Certificate delivered with respect to compliance with a condition or
covenant provided for in this Trust Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.
"Opinion of Counsel" means a written opinion of counsel to the Depositor
who shall, and whose opinion shall, be reasonably acceptable to the Property
Trustee.
"Original Trust Agreement" has the meaning specified in the
recitals to this Trust Agreement.
"Other Capital Securities" means the Capital Securities sold by the
Initial Purchasers in the initial offering contemplated by the Purchase
Agreement to Institutional Accredited Investors in reliance on an exemption from
the registration requirements of the Securities Act other than Rule 144A.
"Outstanding", when used with respect to Trust Securities, means, as of
the date of determination, all Trust Securities theretofore executed and
delivered under this Trust Agreement, except:
(a) Trust Securities theretofore canceled by the Property Trustee or
delivered to the Property Trustee for cancellation;
(b) Trust Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Property Trustee or any
Paying Agent for the Holders of such Trust Securities; provided that, if such
Trust Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Trust Agreement; and
(c) Trust Securities which have been paid or in exchange for or in lieu of
which other Trust Securities have been executed and delivered pursuant to
Sections 5.4, 5.5, and 5.6;
provided, however, that in determining whether the Holders of the requisite
Liquidation Amount of the Outstanding Capital Securities have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, Capital
Securities owned by the Depositor, any Trustee or any Affiliate of the Depositor
or any Trustee shall be disregarded and deemed not to be Outstanding, except
that (a) in determining whether any Trustee shall be protected in relying upon
any such request, demand, authorization, direction, notice, consent or waiver,
only Capital Securities that a Responsible Officer of such Trustee actually
knows to be so owned shall be so disregarded and (b) the foregoing shall not
apply at any time when all of the outstanding Capital Securities are owned by
the Depositor, one or more of the Trustees and/or any such Affiliate. Capital
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Administrators
the pledgee's right so to act with respect to such Capital Securities and that
the pledgee is not the Depositor or any Affiliate of the Depositor.
"Owner" means each Person who is the beneficial owner of Book-Entry
Capital Securities as reflected in the records of the Clearing Agency or, if a
Clearing Agency Participant is not the Owner, then as reflected in the records
of a Person maintaining an account with such Clearing Agency (directly or
indirectly, in accordance with the rules of such Clearing Agency).
"Paying Agent" means any paying agent or co-paying agent appointed
pursuant to Section 5.9 and shall initially be the Bank.
"Payment Account" means a segregated non-interest-bearing corporate trust
account maintained by the Property Trustee with the Bank in its trust department
for the benefit of the Securityholders in which all amounts paid in respect of
the Debentures will be held and from which the Property Trustee, through the
Paying Agent, shall make payments to the Securityholders in accordance with
Sections 4.1 and 4.2.
"Person" means any individual, corporation, partnership, joint venture,
trust, limited liability company or corporation, unincorporated organization or
government or any agency or political subdivision thereof.
"Property Trustee" means the Person identified as the "Property Trustee"
in the preamble to this Trust Agreement solely in its capacity as Property
Trustee of the Trust heretofore formed and continued hereunder and not in its
individual capacity, or its successor in interest in such capacity, or any
successor property trustee appointed as herein provided.
"Purchase Agreement" means the Purchase Agreement, dated December 19,
1996, among the Trust, the Depositor and the Initial Purchasers as such
agreement may be amended from time to time.
"Redemption Date" means, with respect to any Trust Security to be
redeemed, the date fixed for such redemption by or pursuant to this Trust
Agreement; provided that each Debenture Redemption Date and the stated maturity
of the Debentures shall be a Redemption Date for a Like Amount of Trust
Securities.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, plus the related amount of the premium, if
any, paid by the Depositor upon the concurrent redemption of a Like Amount of
Debentures, allocated on a pro rata basis (based on Liquidation Amounts) among
the Trust Securities.
"Regulation D" means Regulation D under the Securities Act (or any
successor provision), as it may be amended from time to time.
"Relevant Trustee" shall have the meaning specified in Section 8.10.
"Responsible Officer" means, when used with respect to the Property
Trustee, any officer assigned to the Corporate Trust Office, including any
managing director, vice president, assistant vice president, assistant
treasurer, assistant secretary or any other officer of the Property Trustee
customarily performing functions similar to those performed by any of the above
designated officers, and also, with respect to a particular matter, any other
officer, to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject and with respect to the Delaware
Trustee, any officer of the Delaware Trustee customarily performing functions
similar to those performed by any of the above designated officers, and also,
with respect to a particular matter, any other officer, to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"Restricted Capital Securities" means all Capital Securities the Capital
Securities Certificate for which is required pursuant to Section 5.5(c) to bear
a Restricted Capital Securities Legend. Such term includes the Book-Entry
Capital Securities Certificate.
"Restricted Capital Securities Certificate" means a certificate
substantially in the form set forth in Exhibit F.
"Restricted Capital Securities Legend" means a legend substantially in the
form of the legend required in the form of Capital Securities Certificate set
forth in Exhibit E-2 to be placed upon a Restricted Capital Security.
"Rule 144A" means Rule 144A under the Securities Act (or any successor
provision), as it may be amended from time to time.
"Rule 144A Capital Securities" means the Capital Securities purchased by
the Initial Purchasers from the Trust pursuant to the Purchase Agreement, other
than the Other Capital Securities.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 5.4.
"Securityholder" or "Holder" means a Person in whose name a Trust Security
or Trust Securities is or are registered in the Securities Register; any such
Person shall be a beneficial owner within the meaning of the Delaware Business
Trust Act; provided, however, that in determining whether the Holders of the
requisite amount of Capital Securities have voted on any matter provided for in
this Trust Agreement, then for the purpose of any such determination, so long as
Definitive Capital Securities Certificates have not been issued, the term
Securityholders or Holders as used herein shall refer to the Owners.
"Successor Capital Securities Certificate" of any particular Capital
Securities Certificate means every Capital Securities Certificate issued after,
and evidencing all or a portion of the same beneficial interest in the Trust as
that evidenced by, such particular Capital Securities Certificate; and, for the
purposes of this definition, any Capital Securities Certificate executed and
delivered under Section 5.6 in exchange for or in lieu of a mutilated,
destroyed, lost or stolen Capital Securities Certificate shall be deemed to
evidence the same beneficial interest as the mutilated, destroyed, lost or
stolen Capital Securities Certificate.
"Time of Delivery" has the meaning specified in the Purchase Agreement.
"Trust" means the Delaware business trust created and continued hereby and
identified on the cover page to this Trust Agreement.
"Trust Agreement" means this Amended and Restated Trust Agreement, as the
same may be modified, amended or supplemented in accordance with the applicable
provisions hereof, including (i) all exhibits hereto and (ii) for all purposes
of this Trust Agreement and any such modification, amendment or supplement, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this Trust Agreement and any such modification, amendment or supplement,
respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Trust Property" means (a) the Debentures, (b) the rights of the Property
Trustee under the Guarantee, (c) any cash on deposit in, or owing to, the
Payment Account and (d) all proceeds and rights in respect of the foregoing and
any other property and assets for the time being held or deemed to be held by
the Property Trustee pursuant to the trusts of this Trust Agreement.
"Trust Security" means any one of the Common Securities or the Capital
Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Capital Securities Certificates.
"Trustees" means, collectively, the Property Trustee and the Delaware
Trustee.
"Unrestricted Securities Certificate" means a certificate substantially in
the form set forth in Exhibit G.
ARTICLE II.
Continuation of the Trust
Section 2.1. Name.
The Trust continued hereby shall be known as "USF&G Capital I," as such
name may be modified from time to time by the Administrators following written
notice to the Holders of Trust Securities and the other Trustees, in which name
the Trustees may conduct the business of the Trust, make and execute contracts
and other instruments on behalf of the Trust and sue and be sued.
Section 2.2. Office of the Delaware Trustee; Principal Place of Business
The address of the Delaware Trustee in the State of Delaware is The Bank
of New York (Delaware), White Clay Center, Route 273, Newark, Delaware 19711 or
such other address in the State of Delaware as the Delaware Trustee may
designate by written notice to the Securityholders and the Depositor. The
principal place of business of the Trust is c/o USF&G Corporation, 100 Light
Street, Baltimore, Maryland 21202.
Section 2.3. Initial Contribution of Trust Property; Organizational
Expenses
The Property Trustee acknowledges receipt in trust from the Depositor in
connection with the Original Trust Agreement of the sum of $10, which
constituted the initial Trust Property. The Depositor shall pay organizational
expenses of the Trust as they arise or shall, upon request of any Trustee,
promptly reimburse such Trustee for any such expenses paid by such Trustee. The
Depositor shall make no claim upon the Trust Property for the payment of such
expenses.
Section 2.4. Issuance of the Capital Securities; Authentication.
On December 19, 1996 the Depositor, on behalf of the Trust and pursuant to
the Original Trust Agreement, executed and delivered the Purchase Agreement.
Contemporaneously with the execution and delivery of this Trust Agreement, an
Administrator, on behalf of the Trust, shall manually execute in accordance with
Section 5.3 and deliver to the Initial Purchasers, or, in the alternative,
execute by facsimile and deliver to the Property Trustee for authentication and
delivery in accordance with Section 5.3, Capital Securities Certificates,
registered in the name of the nominee of the initial Clearing Agency (except to
the extent otherwise provided pursuant to the Purchase Agreement), in an
aggregate amount of 100,000 Capital Securities having an aggregate Liquidation
Amount of $100,000,000, against receipt of the aggregate purchase price for such
Capital Securities of $100,000,000 by the Property Trustee less the amount
payable by the Depositor as compensation to the Initial Purchasers.
Section 2.5. Issuance of the Common Securities; Subscription and
Purchase of Debentures.
Contemporaneously with the execution and delivery of this Trust Agreement,
an Administrator, on behalf of the Trust, shall execute in accordance with
Section 5.2 and deliver to the Depositor Common Securities Certificates,
registered in the name of the Depositor, in an aggregate amount of 3,093 Common
Securities having an aggregate Liquidation Amount of $3,093,000 against payment
by the Depositor of such amount to the Property Trustee. Contemporaneously
therewith, an Administrator, on behalf of the Trust, shall subscribe to and
purchase from the Depositor Debentures, registered in the name of the Trust and
having an aggregate principal amount equal to $3,093,000, and, in satisfaction
of the purchase price for such Debentures, the Property Trustee, on behalf of
the Trust, shall deliver to the Depositor the sum of $3,093,000 (being the sum
of the amounts delivered to the Property Trustee pursuant to (i) Section 2.4 and
(ii) this Section 2.5).
Section 2.6. Declaration of Trust.
The exclusive purposes and functions of the Trust are (a) to issue and
sell Trust Securities and use the proceeds from such sale to acquire the
Debentures, (b) to maintain the status of the Trust as a grantor trust for
United States federal income tax purposes and (c) to engage in those activities
necessary, convenient or incidental thereto. The Depositor hereby appoints the
Trustees as trustees of the Trust, to have all the rights, powers and duties to
the extent set forth herein, and the Trustees hereby accept such appointment.
The Property Trustee hereby declares that it will hold the Trust Property in
trust upon and subject to the conditions set forth herein for the benefit of the
Trust and the Securityholders. The Administrators shall have only those
ministerial duties set forth herein with respect to accomplishing the purposes
of the Trust and shall not be trustees or fiduciaries with respect to the Trust
or the Securityholders. The Property Trustee shall have the right, but shall not
be obligated except as provided in Section 2.7(a)(ii)(J), to perform those
duties assigned to the Administrators. The Delaware Trustee shall not be
entitled to exercise any powers, nor shall the Delaware Trustee have any of the
duties and responsibilities, of the Property Trustee or the Administrators set
forth herein. The Delaware Trustee shall be one of the Trustees of the Trust for
the sole and limited purpose of fulfilling the requirements of Section 3807 of
the Delaware Business Trust Act.
Section 2.7. Authorization to Enter into Certain Transactions.
(a) The Trustees and the Administrators shall conduct the affairs of the
Trust in accordance with the terms of this Trust Agreement. Subject to the
limitations set forth in paragraph (b) of this Section, and in accordance with
the following provisions (i) and (ii), the Trustees and the Administrators shall
have the authority to enter into all transactions and agreements determined by
the Trustees and Administrators to be appropriate in exercising the authority,
express or implied, otherwise granted to the Trustees or the Administrators, as
the case may be, under this Trust Agreement, and to perform all acts in
furtherance thereof, including without limitation, the following:
(i) Each Administrator shall have the power and authority to act on
behalf of the Trust with respect to the following matters:
(A) the issuance and sale of the Trust Securities;
(B) to cause the Trust to enter into, and to execute and
deliver on behalf of the Trust, the Expense Agreement and the
Certificate Depository Agreement and such other agreements as may be
necessary or desirable in connection with the purposes and function
of the Trust;
(C) assisting in the compliance with the Securities Act of
1933, as amended, applicable state securities or blue sky laws, and
the Trust Indenture Act;
(D) registration of the Capital Securities under the Securities
Exchange Act of 1934, as amended, if required, and the preparation
and filing of all periodic and other reports and other documents
pursuant to the foregoing;
(E) assisting in the designation of the Capital Securities for
trading in the Private Offering, Resales and Trading through the
Automatic Linkages (PORTAL) system;
(F) the sending of notices (other than notices of default) and
other information regarding the Trust Securities and the Debentures
to the Securityholders in accordance with this Trust Agreement;
(G) the consent to the appointment of a Paying Agent and
Securities Registrar in accordance with this Trust Agreement which
consent shall not be unreasonably withheld;
(H) execution of the Trust Securities in accordance with this
Trust Agreement;
(I) execution and delivery of closing certificates, pursuant to
the Purchase Agreement and the application for a taxpayer
identification number;
(J) to the extent provided in this Trust Agreement, the winding
up of the affairs of and liquidation of the Trust and the
preparation, execution and filing of the certificate of cancellation
with the Secretary of State of the State of Delaware;
(K) unless otherwise determined by the Property Trustee or the
holders of a majority of the Outstanding Capital Securities or Common
Securities or as otherwise required by the Delaware Business Trust
Act or the Trust Indenture Act, to execute on behalf of the Trust
(either acting alone or together with any or all of the
Administrators) any documents that the Administrators have the power
to execute pursuant to this Trust Agreement; and
(L) the taking of any action incidental to the foregoing as the
Trustees may from time to time determine is necessary or advisable to
give effect to the terms of this Trust Agreement for the benefit of
the Securityholders (without consideration of the effect of any such
action on any particular Securityholder).
(ii) As among the Trustees and the Administrators, the Property
Trustee shall have the power, duty and authority to act on behalf of the
Trust with respect to the following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Debentures;
(C) the collection of interest, principal and any other payments
made in respect of the Debentures in the Payment Account;
(D) the distribution through the Paying Agent of amounts owed to
the Securityholders in respect of the Trust Securities;
(E) the exercise of all of the rights, powers and privileges of
a holder of the Debentures;
(F) the sending of notices of default and other information
regarding the Trust Securities and the Debentures to the
Securityholders in accordance with this Trust Agreement;
(G) the distribution of the Trust Property in accordance with
the terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the winding
up of the affairs of and liquidation of the Trust and the
preparation, execution and filing of the certificate of cancellation
with the Secretary of State of the State of Delaware;
(I) after an Event of Default (other than under paragraph (b),
(c), (d) or (e) of the definition of such term if such Event of
Default is by or with respect to the Property Trustee) the taking of
any action incidental to the foregoing as the Property Trustee may
from time to time determine is necessary or advisable to give effect
to the terms of this Trust Agreement and protect and conserve the
Trust Property for the benefit of the Securityholders (without
consideration of the effect of any such action on any particular
Securityholder); and
(J) any of the duties, liabilities, powers or the authority of
the Administrators set forth in Section 2.7(a)(i)(E), (F), (H) and
(J) herein; and in the event of a conflict between the action of the
Administrators and the action of the Property Trustee, the action of
the Property Trustee shall prevail.
(b) So long as this Trust Agreement remains in effect, the Trust (or the
Trustees or Administrators acting on behalf of the Trust) shall not undertake
any business, activities or transaction except as expressly provided herein or
contemplated hereby. In particular, neither the Trustees nor the Administrators
shall (i) acquire any investments or engage in any activities not authorized by
this Trust Agreement, (ii) sell, assign, transfer, exchange, mortgage, pledge,
set-off or otherwise dispose of any of the Trust Property or interests therein,
including to Securityholders, except as expressly provided herein, (iii) take
any action that would reasonably be expected to cause the Trust to fail or cease
to qualify as a "grantor trust" for United States Federal income tax purposes,
(iv) incur any indebtedness for borrowed money or issue any other debt or (v)
take or consent to any action that would result in the placement of a Lien on
any of the Trust Property. The Property Trustee shall at the sole cost and
expense of the Trust defend all claims and demands of all Persons at any time
claiming any Lien on any of the Trust Property adverse to the interest of the
Trust or the Securityholders in their capacity as Securityholders.
(c) In connection with the issue and sale of the Capital Securities, the
Depositor shall have the right and responsibility to assist the Trust with
respect to, or effect on behalf of the Trust, the following (and any actions
taken by the Depositor in furtherance of the following prior to the date of this
Trust Agreement are hereby ratified and confirmed in all respects):
(i) the preparation by the Trust of an Offering Circular in relation
to the Capital Securities, including any amendments thereto and the taking
of any action necessary to obtain an exemption from the Securities Act;
(ii) the determination of the States in which to take appropriate
action to qualify or register for sale all or part of the Capital
Securities and the determination of any and all such acts, other than
actions which must be taken by or on behalf of the Trust, and the advice to
the Trustees of actions they must take on behalf of the Trust, and the
preparation for execution and filing of any documents to be executed and
filed by the Trust or on behalf of the Trust, as the Depositor deems
necessary or advisable in order to comply with the applicable laws of any
such States in connection with the sale of the Capital Securities;
(iii) the negotiation of the terms of, and the execution and delivery
of, the Purchase Agreement providing for the sale of the Capital
Securities; and
(iv) the taking of any other actions necessary or desirable to carry
out any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the Administrators
and the Property Trustee are authorized and directed to conduct the affairs of
the Trust and to operate the Trust so that the Trust will not be deemed to be an
"investment company" required to be registered under the 1940 Act, or fail to be
classified as a grantor trust for United States Federal income tax purposes and
so that the Debentures will be treated as indebtedness of the Depositor for
United States Federal income tax purposes. In this connection, the
Administrators, the Property Trustee and the holders of a majority of the Common
Securities are authorized to take any action, not inconsistent with applicable
law, the Certificate of Trust or this Trust Agreement, that each of any
Administrator, the Property Trustee and the holders of a majority of Common
Securities determines in its discretion to be necessary or desirable for such
purposes, as long as such action does not adversely affect in any material
respect the interests of the holders of the Capital Securities.
Section 2.8. Assets of Trust.
The assets of the Trust shall consist of the Trust Property.
Section 2.9. Title to Trust Property.
Legal title to all Trust Property shall be vested at all times in the
Property Trustee (in its capacity as such) and shall be held and administered by
the Property Trustee for the benefit of the Trust and the Securityholders in
accordance with this Trust Agreement.
ARTICLE III.
Payment Account
Section 3.1. Payment Account.
(a) On or prior to the Closing Date, the Property Trustee shall establish
the Payment Account. The Property Trustee and any agent of the Property Trustee
shall have exclusive control and sole right of withdrawal with respect to the
Payment Account for the purpose of making deposits in and withdrawals from the
Payment Account in accordance with this Trust Agreement. All monies and other
property deposited or held from time to time in the Payment Account shall be
held by the Property Trustee in the Payment Account for the exclusive benefit of
the Securityholders and for distribution as herein provided, including (and
subject to) any priority of payments provided for herein.
(b) The Property Trustee shall deposit in the Payment Account, promptly
upon receipt, all payments of principal of or interest on, and any other
payments or proceeds with respect to, the Debentures. Amounts held in the
Payment Account shall not be invested by the Property Trustee pending
distribution thereof.
ARTICLE IV.
Distributions; Redemption
Section 4.1 Distribution.
(a) The Trust Securities represent undivided beneficial interests in the
Trust Property, and Distributions (including Additional Amounts) will be made on
the Trust Securities at the rate and on the dates that payments of interest
(including of Additional Interest, as defined in the Indenture) are made on the
Debentures. Accordingly:
(i) Distributions on the Trust Securities shall be cumulative, and
will accumulate whether or not there are funds of the Trust available for
the payment of Distributions. Distributions shall accrue from December 24,
1996, and, except in the event (and to the extent) that the Depositor
exercises its right to defer the payment of interest on the Debentures
pursuant to the Indenture, shall be payable semi-annually in arrears on
June 15 and December 15 of each year, commencing on June 15, 1997. If any
date on which a Distribution is otherwise payable on the Trust Securities
is not a Business Day, then the payment of such Distribution shall be made
on the next succeeding day that is a Business Day (and without any interest
or other payment in respect of any such delay) with the same force and
effect as if made on the date such payment was originally payable (each
date on which distributions are payable in accordance with this Section
4.1(a), a "Distribution Date").
(ii) Assuming payments of interest on the Debentures are made when
due (and before giving effect to Additional Amounts, if applicable),
Distributions on the Trust Securities shall be payable at a rate of 8.50%
per annum of the Liquidation Amount of the Trust Securities. The amount of
Distributions payable for any period less than a full period shall be
computed on the basis of a 360-day year of twelve 30-day months and the
actual number of days elapsed in a partial month in a period. Distributions
payable for each full Distribution period will be computed by dividing the
rate per annum by two. The amount of Distributions payable for any period
shall include the Additional Amounts, if any.
(iii) Distributions on the Trust Securities shall be made by the
Property Trustee from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Trust has funds then on hand
and available in the Payment Account for the payment of such Distributions.
(b) Distributions on the Trust Securities with respect to a Distribution
Date shall be payable to the Holders thereof as they appear on the Securities
Register for the Trust Securities at the close of business on the relevant
record date, which, for so long as the Capital Securities remain in book-entry
form, shall be one Business Day prior to the relevant Distribution Date and, in
the event the Capital Securities are not in book-entry form, shall be the June 1
or December 1 next preceding the relevant Distribution Date.
Section 4.2. Redemption.
(a) On each Debenture Redemption Date and on the stated maturity of the
Debentures, the Trust will be required to redeem a Like Amount of Trust
Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee by
first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the Redemption Date to each Holder of Trust Securities to be redeemed,
at such Holder's address appearing in the Security Register. All notices of
redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price or if the Redemption Price cannot be
calculated prior to the time the notice is required to be sent, the
estimate of the Redemption Price provided pursuant to the Indenture
together with a statement that it is an estimate and that the actual
Redemption Price will be calculated on the third Business Day prior to the
Redemption Date (and if an estimate is provided, a further notice shall be
sent of the actual Redemption Price on the date that notice of such actual
Redemption Price is received pursuant to the Indenture);
(iii) the CUSIP number;
(iv) if less than all the Outstanding Trust Securities are to be
redeemed, the identification and the total Liquidation Amount of the
particular Trust Securities to be redeemed;
(v) that on the Redemption Date the Redemption Price will become due
and payable upon each such Trust Security to be redeemed and that
Distributions thereon will cease to accrue on and after said date; and
(vi) the place or places where the Trust Securities are to be
surrendered for the payment of the Redemption Price.
The Trust, in issuing the Trust Securities, may use "CUSIP" or "private
placement" numbers (if then generally in use), and, if so, the Property Trustee
shall indicate the "CUSIP" or "private placement" numbers of the Trust
Securities in notices of redemption and related materials as a convenience to
Securityholders; provided that any such notice may state that no representation
is made as to the correctness of such numbers either as printed on the Trust
Securities or as contained in any notice of redemption and related materials.
The Depositor will promptly notify the Property Trustee of any change in the
CUSIP numbers.
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption of Debentures. Redemptions of the Trust Securities shall be made and
the Redemption Price shall be payable on each Redemption Date only to the extent
that the Trust has funds then on hand and available in the Payment Account for
the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect of any
Capital Securities, then, by 12:00 noon, New York City time, on the Redemption
Date, subject to Section 4.2(c), the Property Trustee will, with respect to
Book-Entry Capital Securities, irrevocably deposit with the Clearing Agency for
such Book-Entry Capital Securities funds sufficient to pay the applicable
Redemption Price and will give such Clearing Agency irrevocable instructions and
authority to pay the Redemption Price to the holders thereof. With respect to
Capital Securities that are not Book-Entry Capital Securities, the Property
Trustee, subject to Section 4.2(c), will irrevocably deposit with the Paying
Agent funds sufficient to pay the applicable Redemption Price and will give the
Paying Agent irrevocable instructions and authority to pay the Redemption Price
to the Holders thereof upon surrender of their Capital Securities Certificates.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Trust Securities called for redemption shall be payable
to the Holders of such Trust Securities as they appear on the Register for the
Trust Securities on the relevant record dates for the related Distribution
Dates. If notice of redemption shall have been given and funds deposited as
required, then upon the date of such deposit, all rights of Securityholders
holding Trust Securities so called for redemption will cease, except the right
of such Securityholders to receive the Redemption Price including any unpaid
Distribution payable on or prior to the Redemption Date, but without interest,
and such Securities will cease to be outstanding. In the event that any date on
which any Redemption Price is payable is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day, in
each case, with the same force and effect as if made on such date. In the event
that payment of the Redemption Price in respect of any Trust Securities called
for redemption is improperly withheld or refused and not paid either by the
Trust or by the Depositor pursuant to the Guarantee, Distributions on such Trust
Securities will continue to accrue, at the then applicable rate, from the
Redemption Date originally established by the Trust for such Trust Securities to
the date such Redemption Price is actually paid, in which case the actual
payment date will be the date fixed for redemption for purposes of calculating
the Redemption Price.
(e) Subject to Section 4.3(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated on a
pro rata basis (based on Liquidation Amounts) among the Common Securities and
the Capital Securities. The particular Capital Securities to be redeemed shall
be selected on a pro rata basis (based upon Liquidation Amounts) not more than
60 days prior to the Redemption Date by the Property Trustee from the
Outstanding Capital Securities not previously called for redemption, provided,
however, that with respect to Holders that would be required to hold less than
100 but more than zero Capital Securities as a result of such pro rata
redemption, the Property Trustee shall redeem each such Holders to either 100
Capital Securities or zero Capital Securities and shall use such method
(including, without limitation, by lot) as the Property Trustee shall deem fair
and appropriate. Such determination shall be conclusive and binding upon the
Holders and the Property Trustee shall have no liability in connection
therewith. The Property Trustee shall promptly notify the Security Registrar in
writing of the Capital Securities selected for redemption and, in the case of
any Capital Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For all purposes of this Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of Capital
Securities shall relate, in the case of any Capital Securities redeemed or to be
redeemed only in part, to the portion of the Liquidation Amount of Capital
Securities that has been or is to be redeemed.
Section 4.3. Subordination of Common Securities.
(a) Payment of Distributions (including Additional Amounts, if applicable)
on, and the Redemption Price of, the Trust Securities, as applicable, shall be
made, subject to Section 4.2(e), pro rata among the Common Securities and the
Capital Securities based on the Liquidation Amount of the Trust Securities;
provided, however, that if on any Distribution Date or Redemption Date any Event
of Default resulting from a Debenture Event of Default shall have occurred and
be continuing, no payment of any Distribution (including Additional Amounts, if
applicable) on, or Redemption Price of, any Common Security, and no other
payment on account of the redemption, liquidation or other acquisition of Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid Distributions (including Additional Amounts, if applicable) on all
Outstanding Capital Securities for all Distribution periods terminating on or
prior thereto, or in the case of payment of the Redemption Price the full amount
of such Redemption Price on all Outstanding Capital Securities then called for
redemption, shall have been made or provided for, and all funds immediately
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions (including Additional Amounts, if applicable) on,
or the Redemption Price of, Capital Securities then due and payable.
(b) In the case of the occurrence of any Event of Default resulting from
any Debenture Event of Default, the Holder of Common Securities will be deemed
to have waived any right to act with respect to any such Event of Default under
this Trust Agreement until the effect of all such Events of Default with respect
to the Capital Securities have been cured, waived or otherwise eliminated. Until
any such Event of Default under this Trust Agreement with respect to the Capital
Securities has been so cured, waived or otherwise eliminated, the Property
Trustee shall act solely on behalf of the Holders of the Capital Securities and
not the Holder of the Common Securities, and only the Holders of the Capital
Securities will have the right to direct the Property Trustee to act on their
behalf.
Section 4.4. Payment Procedures.
Payments of Distributions (including Additional Amounts, if applicable) in
respect of the Capital Securities shall be made by check mailed to the address
of the Person entitled thereto as such address shall appear on the Securities
Register or, if the Capital Securities are held by a Clearing Agency, such
Distributions shall be made to the Clearing Agency in immediately available
funds, which shall credit the relevant Persons' accounts at such Clearing Agency
on the applicable Distribution Dates. Payments in respect of the Common
Securities shall be made in such manner as shall be mutually agreed between the
Property Trustee and the Common Securityholder.
Section 4.5. Tax Returns and Reports.
The Administrators shall prepare (or cause to be prepared), at the
Depositor's expense, and file all United States federal, state and local tax and
information returns and reports required to be filed by or in respect of the
Trust. In this regard, the Administrators shall (a) prepare and file (or cause
to be prepared and filed) the appropriate Internal Revenue Service Form required
to be filed in respect of the Trust in each taxable year of the Trust and (b)
prepare and furnish (or cause to be prepared and furnished) to each
Securityholder the appropriate Internal Revenue Service form required to be
provided on such form. The Administrators shall provide the Depositor and the
Property Trustee with a copy of all such returns and reports promptly after such
filing or furnishing. The Property Trustee shall comply with United States
federal withholding and backup withholding tax laws and information reporting
requirements with respect to any payments to Securityholders under the Trust
Securities.
On or before December 15 of each year during which any Capital Securities
are outstanding, the Administrators shall furnish to the Property Trustee such
information as may be reasonably requested by the Property Trustee in order that
the Property Trustee may prepare the information which it is required to report
for such year on Internal Revenue Service Forms 1096 and 1099 pursuant to
Section 6049 of the Internal Revenue Code of 1986, as amended. Such information
shall include the amount of original issue discount includible in income for
each outstanding Capital Security during such year.
Section 4.6. Payment of Taxes, Duties, Etc. of the Trust.
Upon receipt under the Debentures of Additional Sums, the Property Trustee
shall promptly pay any taxes, duties or governmental charges of whatsoever
nature (other than withholding taxes) imposed on the Trust by the United States
or any other taxing authority.
Section 4.7. Payments under Indenture or Pursuant to Direct
Actions.
Any amount payable hereunder to any Holder of Capital Securities shall be
reduced by the amount of any corresponding payment such Holder (or an Owner with
respect to the Holder's Capital Securities) has directly received pursuant to
Section 5.8 of the Indenture or Section 5.13 of this Trust Agreement.
ARTICLE V.
Trust Securities Certificates
Section 5.1. Initial Ownership.
Upon the creation of the Trust and the contribution by the Depositor
pursuant to Section 2.3 and until the issuance of the Trust Securities, and at
any time during which no Trust Securities are outstanding, the Depositor shall
be the sole beneficial owner of the Trust.
Section 5.2. The Trust Securities Certificates.
(a) The Capital Securities Certificates shall be issued in minimum
denominations of $1,000 Liquidation Amount (and in blocks of at least 100
Capital Securities) and integral multiples thereof, and the Common Securities
Certificates shall be issued in denominations of $1,000 Liquidation Amount and
integral multiples thereof. The Trust Securities Certificates shall be executed
on behalf of the Trust by signature of at least one Administrator. Trust
Securities Certificates bearing the signatures of individuals who were, at the
time when such signatures shall have been affixed, authorized to sign on behalf
of the Trust, shall be validly issued and entitled to the benefits of this Trust
Agreement, notwithstanding that such individuals or any of them shall have
ceased to be so authorized prior to the delivery of such Trust Securities
Certificates or did not hold such offices at the date of delivery of such Trust
Securities Certificates. A transferee of a Trust Securities Certificate shall
become a Securityholder, and shall be entitled to the rights and subject to the
obligations of a Securityholder hereunder, upon due registration of such Trust
Securities Certificate in such transferee's name pursuant to Section 5.5.
(b) Upon their original issuance, Capital Securities Certificates
representing Rule 144A Capital Securities shall be issued in the form of one or
more Book-Entry Capital Securities Certificates registered in the name of DTC,
as Clearing Agency, or its nominee and deposited with DTC for credit by DTC to
the respective accounts of the Owners thereof (or such other accounts as they
may direct).
(c) Upon their original issuance, Capital Securities Certificates
representing Other Capital Securities shall not be issued in the form of a
Book-Entry Capital Securities Certificate or in any other form intended to
facilitate book-entry trading in beneficial interests in such Capital
Securities.
(d) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.
Section 5.3. Execution and Delivery of Trust Securities Certificates.
At the Time of Delivery, the Administrators shall cause the Common
Securities Certificate, in an aggregate Liquidation Amount as provided in
Section 2.5, to be executed on behalf of the Trust and delivered, and the
Administrators shall cause Capital Securities Certificates, in an aggregate
Liquidation Amount as provided in Section 2.4, to be executed by facsimile and
delivered to the Property Trustee and upon such delivery the Property Trustee
shall authenticate such Capital Securities Certificates, and deliver such
Capital Securities Certificates in each case to or upon the written order of the
Depositor, signed by its chairman of the board, its president, any executive
vice president or any vice president, treasurer or assistant treasurer or
controller without further corporate action by the Depositor, in authorized
denominations.
Section 5.4. Book-Entry Capital Securities.
(a) Each Book-Entry Capital Securities Certificate issued under this Trust
Agreement shall be registered in the name of the Clearing Agency designated by
the Depositor for the related Book- Entry Capital Securities or a nominee
thereof and delivered to such Clearing Agency or a nominee thereof or custodian
therefor.
(b) Notwithstanding any other provision in this Trust Agreement, no
Book-Entry Capital Securities Certificate may be exchanged in whole or in part
for Capital Securities Certificates registered, and no transfer of a Book-Entry
Capital Securities Certificate in whole or in part may be registered, in the
name of any Person other than the Clearing Agency for such Book-Entry Capital
Securities Certificates or a nominee thereof unless (a) the Clearing Agency
advises the Property Trustee in writing that the Clearing Agency is no longer
willing or able to properly discharge its responsibilities with respect to the
Book-Entry Capital Securities Certificates and the Property Trustee is unable to
locate a qualified successor, (b) the Trust, at its option, advises the Clearing
Agency in writing that it elects to terminate the book-entry system through the
Clearing Agency, (c) after the occurrence of a Debenture Event of Default or (d)
pursuant to the following sentence. All or any portion of a Book-Entry Capital
Securities certificate may be exchanged for a Capital Securities Certificate
that has a like aggregate principal amount and is not a Book-Entry Capital
Securities Certificate, upon 20 days' prior request made by the Clearing Agency
or its authorized representative to the Property Trustee; provided, however,
that no Capital Securities Certificate shall be issued in an amount representing
less than 100 Capital Securities. Upon the occurrence of any event specified in
clause (a), (b) or (c) above, the Administrators shall notify the Clearing
Agency and the Clearing Agency shall notify all Owners of Book-Entry Capital
Securities, the Delaware Trustee and the Administrators of the occurrence of
such event and of the availability of the Definitive Capital Securities
Certificates to Owners of such class or classes, as applicable, requesting the
same; provided, however, that no Definitive Capital Securities Certificate shall
be issued in an amount representing less than 100 Capital Securities.
(c) If any Book-Entry Capital Securities Certificate is to be exchanged
for other Capital Securities Certificates or canceled in part, or if another
Capital Securities Certificate is to be exchanged in whole or in part for
Book-Entry Capital Securities represented by a Book-Entry Capital Securities
Certificate, then either (i) such Book-Entry Capital Securities Certificate
shall be so surrendered for exchange or cancellation as provided in this Article
Five or (ii) the aggregate Liquidation Amount represented by such Book-Entry
Capital Securities Certificate shall be reduced, subject to Section 5.2, or
increased by an amount equal to the Liquidation Amount represented by that
portion of the Book-Entry Capital Securities Certificate to be so exchanged or
canceled, or equal to the Liquidation Amount represented by such other Capital
Securities Certificates to be so exchanged for Book-Entry Capital Securities
represented thereby, as the case may be, by means of an appro priate adjustment
made on the records of the Security Registrar, whereupon the Property Trustee,
in accordance with the Applicable Procedures, shall instruct the Clearing Agency
or its authorized representative to make a corresponding adjustment to its
records. Upon surrender to the Administrators or the Securities Registrar of the
Book-Entry Capital Securities Certificate or Certificates by the Clearing
Agency, accompanied by registration instructions, the Administrators, or any one
of them, shall execute the Definitive Capital Securities Certificates in
accordance with the instructions of the Clearing Agency; provided, however, that
no Definitive Capital Securities Certificate shall be issued in an amount
representing less than 100 Capital Securities. None of the Securities Registrar,
the Trustees or the Administrators shall be liable for any delay in delivery of
such instructions and may conclusively rely on, and shall be protected in
relying on, such instructions. Upon the issuance of Definitive Capital
Securities Certificates, the Trustees and Administrators shall recognize the
Holders of the Definitive Capital Securities Certificates as Securityholders.
The Definitive Capital Securities Certificates shall be printed, lithographed or
engraved or may be produced in any other manner as is reasonably acceptable to
the Administrators, as evidenced by the execution thereof by the Administrators
or any one of them.
(d) Every Capital Securities Certificate executed and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Book-Entry
Capital Securities Certificate or any portion thereof, whether pursuant to this
Article Five or Article Four or otherwise, shall be executed and delivered in
the form of, and shall be, a Book-Entry Capital Securities Certificate, unless
such Capital Securities Certificate is registered in the name of a Person other
than the Clearing Agency for such Book-Entry Capital Securities Certificate or a
nominee thereof.
(e) The Clearing Agency or its nominee, as registered owner of a
Book-Entry Capital Securities Certificate, shall be the Holder of such
Book-Entry Capital Securities Certificate for all purposes under this Agreement
and the Book-Entry Capital Securities Certificate, and Owners with respect to a
Book-Entry Capital Securities Certificate shall hold such interests pursuant to
the Applicable Procedures. The Securities Registrar and the Trustees shall be
entitled to deal with the Clearing Agency for all purposes of this Trust
Agreement relating to the Book-Entry Capital Securities Certificates (including
the payment of the Liquidation Amount of and Distributions on the Book-Entry
Capital Securities represented thereby and the giving of instructions or
directions to Owners of Book-Entry Capital Securities represented thereby) as
the sole Holder of the Book-Entry Capital Securities represented thereby and
shall have no obligations to the Owners thereof. Neither the Trustee nor the
Securities Registrar shall have any liability in respect of any transfers
effected by the Clearing Agency.
The rights of the Owners of the Book-Entry Capital Securities shall be
exercised only through the Clearing Agency and shall be limited to those
established by law, the Applicable Procedures and agreements between such Owners
and the Clearing Agency and/or the Clearing Agency Participants. Pursuant to the
Certificate Depository Agreement, unless and until Definitive Capital Securities
Certificates are issued pursuant to Section 5.4(b), the initial Clearing Agency
will make book-entry transfers among the Clearing Agency Participants and
receive and transmit payments on the Capital Securities to such Clearing Agency
Participants.
Section 5.5. Registration of Transfer and Exchange of Capital
Securities Certificates; Restricted Capital Securities
Legends.
(a) The Property Trustee shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 5.9, a register or registers for the
purpose of registering Trust Securities Certificates and transfers and exchanges
of Capital Securities Certificates (the "Securities Register") in which, the
registrar designated by the Property Trustee (the "Securities Registrar") with
the reasonable consent of the Administrators, subject to such reasonable
regulations as it may prescribe, shall provide for the registration of Capital
Securities Certificates and Common Securities Certificates (subject to Section
5.11 in the case of the Common Securities Certificates) and registration of
transfers and exchanges of Capital Securities Certificates as herein provided.
The Bank shall be the initial Securities Registrar.
Upon surrender for registration of transfer of any Capital Securities
Certificate at the office or agency maintained pursuant to Section 5.9, the
Administrators or any one of them shall execute and deliver to the Property
Trustee for further delivery, in the name of the designated transferee or
transferees, one or more new Capital Securities Certificates in authorized
denominations of a like aggregate Liquidation Amount dated the date of execution
by such Administrator.
The Securities Registrar shall not be required to (a) issue, register the
transfer of or exchange any Capital Securities during a period beginning at the
opening of business 15 days before the day of mailing of a notice of redemption
or (b) to transfer or exchange any Capital Securities so selected for redemption
in whole or in part, except, in the case of any Capital Securities to be
redeemed in part, any portion thereof not to be redeemed. At the option of a
Holder, Capital Securities Certificates may be exchanged for other Capital
Securities Certificates in authorized denominations of the same class and of a
like aggregate Liquidation Amount upon surrender of the Capital Securities
Certificates to be exchanged at the office or agency maintained pursuant to
Section 5.9.
Every Capital Securities Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Securities Registrar duly
executed by the Holder or his attorney duly authorized in writing. Each Capital
Securities Certificate surrendered for registration of transfer or exchange
shall be canceled and subsequently disposed of by the Property Trustee in
accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Capital Securities Certificates, but the Securities Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Capital Securities
Certificates.
The provisions of Sections 8.1, 8.3 and 8.6 herein shall apply to the Bank
also in its role as Securities Registrar, for so long as the Bank shall act as
Securities Registrar.
Whenever this document makes reference to the execution of Trust
Securities Certificates, such reference to execution shall mean manual execution
or, in the alternative, execution by facsimile signature by an Administrator,
and, in the case of Capital Securities, authentication by the Property Trustee.
Capital Securities Certificates bearing the manual or facsimile signatures
of individuals who were at any time the proper Administrators of the Trust shall
bind the Trust, notwithstanding that such individuals or any of them have ceased
to hold such office prior to the authentication and delivery of such Capital
Securities Certificates or did not hold such offices at the date of such Capital
Securities Certificates.
Each Capital Securities Certificate that is executed by facsimile and
authenticated by the Property Trustee shall be dated the date of its
authentication.
No Capital Securities Certificate that is executed by facsimile and
authenticated by the Property Trustee shall be entitled to any benefit under
this Trust Agreement or be valid or obligatory for any purpose, unless there
appears on such Capital Securities Certificate a certificate of authentication
substantially in the form provided for in the form attached as Exhibit E-2
executed by the Property Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Capital Securities
Certificate shall be conclusive evidence, and the only evidence, that such
Capital Securities Certificate has been duly authenticated and delivered
hereunder.
(b) Certain Transfers and Exchanges. Notwithstanding any other provision
of this Trust Agreement, transfers and exchanges of Capital Securities
Certificates and beneficial interests in a Book-Entry Capital Security of the
kinds specified in this Section 5.5(b) shall be made only in accordance with
this Section 5.5(b).
(i) Non-Book-Entry Capital Securities Certificate to Book-Entry
Capital Securities Certificate. If the Holder of a Capital Securities
Certificate (other than a Book-Entry Capital Securities Certificate) wishes
at any time to transfer all or any portion of the Capital Securities
represented thereby to a Person who wishes to take delivery thereof in the
form of Book-Entry Capital Securities represented by a Book-Entry Capital
Securities Certificate, such transfer may be effected only in accordance
with the provisions of this Clause (b)(i) and subject to the Applicable
Procedures. Upon receipt by the Security Registrar of (A) such Capital
Securities Certificate as provided in Section 5.5(a) and instructions
satisfactory to the Security Registrar directing that a specified number of
Capital Securities to be represented by the Book-Entry Capital Securities
Certificate not greater than the number of Capital Securities represented
by such Capital Securities Certificate be credited to a specified Clearing
Agency Participant's account and (B) a Restricted Securities Certificate
duly executed by such Holder or his attorney duly authorized in writing,
then the Security Registrar shall cancel such Capital Securities
Certificate (and issue a new Capital Securities Certificate in respect of
any untransferred portion thereof) as provided in Section 5.5(a) and
increase the aggregate Liquidation Amount of the Book-Entry Capital
Securities Certificate by the Liquidation Amount represented by such
Capital Securities so transferred as provided in Section 5.4(c).
(ii) Non-Book-Entry Capital Securities Certificate to Non-Book-Entry
Capital Securities Certificate. A Capital Securities Certificate that is
not a Book-Entry Capital Securities Certificate may be transferred, in
whole or in part, to a Person who takes delivery in the form of another
Capital Securities Certificate that is not a Book-Entry Capital Securities
Certificate as provided in Section 5.5(a), provided that if the Capital
Securities Certificate is a Restricted Capital Securities Certificate, then
the Security Registrar shall have received a Restricted Securities
Certificate duly executed by the transferor Holder or his attorney duly
authorized in writing.
(iii) Exchanges between Book-Entry Capital Securities Certificate and
Non-Book-Entry Capital Securities Certificate. A Book-Entry Capital
Security represented by a Book-Entry Capital Securities Certificate may be
exchanged for a Capital Securities Certificate that is not a Book- Entry
Capital Securities Certificate as provided in Section 5.4.
(iv) Certain Initial Transfers of Non-Book-Entry Capital Securities
Certificates. In the case of Capital Securities Certificates initially
issued other than in global form, an initial transfer or exchange of such
Capital Securities Certificates that does not involve any change in
beneficial ownership may be made to an Institutional Accredited Investor or
Investors as if such transfer or exchange were not an initial transfer or
exchange; provided that a written certification is provided certifying that
such exchange or transfer does not involve a change in beneficial
ownership.
(v) Limitations Relating to Size of Blocks. Notwithstanding any
other provision of this Trust Agreement, Capital Securities may only be
transferred or exchanged in blocks having a Liquidation Amount of not less
than $100,000. Any transfer, exchange or other disposition of Capital
Securities in contravention of this Section 5.5(b)(v) shall be deemed to be
void and of no legal effect whatsoever, any such transferee shall be deemed
not to be the Holder or Owner of such Capital Securities for any purpose,
including but not limited to the receipt of Distributions on such Capital
Securities, and such transferee shall be deemed to have no interest
whatsoever in such Capital Securities.
(c) Restricted Capital Securities Legend. All Capital Securities issued
hereunder shall bear a Restricted Capital Securities Legend, subject to the
following:
(i) subject to the following Clauses of this Section 5.5(c), a
Capital Securities Certificate or any portion thereof which is exchanged,
upon transfer or otherwise, for a Book-Entry Capital Securities Certificate
or any portion thereof shall bear a Restricted Capital
Securities Legend;
(ii) subject to the following Clauses of this Section 5.5(c), a new
Capital Securities Certificate which is not a Book-Entry Capital Securities
Certificate and is issued in exchange for another Capital Securities
Certificate (including a Book-Entry Capital Securities Certificate) or any
portion thereof, upon transfer or otherwise, shall bear a Restricted
Capital Securities Legend;
(iii) after December 24, 1998, a new Capital Securities Certificate
(other than a Book-Entry Capital Security Certificate) which does not bear
a Restricted Capital Securities Legend shall (unless an Administrator
provides an Opinion of Counsel to the contrary) be issued in exchange for
or in lieu of a Restricted Capital Securities Certificate or any portion
thereof if the Property Trustee has received an Unrestricted Securities
Certificate, in the form of Exhibit G hereto, duly executed by the Holder
or the Owner of such Restricted Capital Securities Certificate or his
attorney duly authorized in writing, and after such date and receipt of
such certificate, the Administrators shall execute and deliver such a new
Capital Securities Certificate in exchange for or in lieu of such other
Restricted Capital Securities Certificate as provided in this Article Five;
(iv) a new Capital Securities Certificate (other than a Book-Entry
Capital Securities Certificate) which does not bear a Restricted Capital
Securities Legend may be issued in exchange for or in lieu of a Restricted
Capital Securities Certificate or any portion thereof based on an Opinion
of Counsel, stating that placing such a legend upon such new Capital
Securities Certificate is not necessary to ensure compliance with the
registration requirements of the Securities Act, and the Administrators,
shall execute and deliver such a new Capital Securities Certificate as
provided in this Article Five; and
(v) notwithstanding the foregoing provisions of this Section 5.5(c),
a Successor Capital Securities Certificate of a Capital Securities
Certificate that does not bear a Restricted Capital Securities Legend shall
not bear such form of legend unless a Responsible Officer of the Property
Trustee has actual knowledge (without conducting any independent inquiry)
that such Successor Capital Securities Certificate is a "restricted
security" within the meaning of Rule 144, in which case the Administrators
shall authenticate and deliver a new Capital Securities Certificate bearing
a Restricted Capital Securities Legend in exchange for such Successor
Capital Securities Certificate as provided in this Article Five.
Section 5.6. Mutilated, Destroyed, Lost or Stolen Trust Securities
Certificates.
If (a) any mutilated Trust Securities Certificate shall be surrendered to
the Securities Registrar, or if the Securities Registrar shall receive evidence
to its satisfaction of the destruction, loss or theft of any Trust Securities
Certificate and (b) there shall be delivered to the Securities Registrar and the
Administrators such security or indemnity as may be required by them to save
each of them harmless, then in the absence of notice that such Trust Securities
Certificate shall have been acquired by a bona fide purchaser, the
Administrators, or any one of them, on behalf of the Trust shall execute and
make available for delivery, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities
Certificate of like class, tenor and denomination. In connection with the
issuance of any new Trust Securities Certificate under this Section, the
Administrators or the Securities Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith. Any duplicate Trust Securities Certificate issued pursuant
to this Section shall constitute conclusive evidence of an undivided beneficial
interest in the assets of the Trust, as if originally issued, whether or not the
lost, stolen or destroyed Trust Securities Certificate shall be found at any
time.
Section 5.7. Persons Deemed Securityholders.
The Trustees, the Administrators or the Securities Registrar shall treat
the Person in whose name any Trust Securities Certificate shall be registered in
the Securities Register as the owner of such Trust Securities Certificate for
the purpose of receiving Distributions and for all other purposes whatsoever,
and neither the Trustees, the Administrators nor the Securities Registrar shall
be bound by any notice to the contrary.
Section 5.8. Access to List of Securityholders' Names and Addresses.
Each Holder and each Owner shall be deemed to have agreed not to hold the
Depositor, the Trustees or the Administrators accountable by reason of the
disclosure of its name and address, regardless of the source from which such
information was derived.
Section 5.9. Maintenance of Office or Agency.
The Property Trustee shall designate, with the consent of the
Administrators, which consent shall not be unreasonably withheld, an office or
offices or agency or agencies where Capital Securities Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Trustees in respect of the Trust Securities Certificates
may be served. The Corporate Trust Office of the Property Trustee is initially
designated the office for such purpose. The Administrators or the Property
Trustee shall give prompt written notice to the Depositor and to the
Securityholders of any change in the location of the Securities Register or any
such office or agency.
Section 5.10. Appointment of Paying Agent.
The Paying Agent shall make Distributions to Securityholders from the
Payment Account and shall report the amounts of such Distributions to the
Property Trustee and the Administrators. Any Paying Agent shall have the
revocable power to withdraw funds from the Payment Account for the purpose of
making the Distributions referred to above. The Property Trustee may revoke such
power and remove the Paying Agent in its sole discretion. The Paying Agent shall
initially be the Bank, and any co-paying agent chosen by the Bank, and
reasonably acceptable to the Administrators. Any Person acting as Paying Agent
shall be permitted to resign as Paying Agent upon 30 days' written notice to the
Administrators and the Property Trustee. In the event that the Bank shall no
longer be the Paying Agent or a successor Paying Agent shall resign or its
authority to act be revoked, the Property Trustee shall appoint a successor that
is reasonably acceptable to the Administrators to act as Paying Agent (which
shall be a bank or trust company). Such successor Paying Agent or any additional
Paying Agent shall execute and deliver to the Trustees an instrument in which
such successor Paying Agent or additional Paying Agent shall agree with the
Trustees that as Paying Agent, such successor Paying Agent or additional Paying
Agent will hold all sums, if any, held by it for payment to the Securityholders
in trust for the benefit of the Securityholders entitled thereto until such sums
shall be paid to such Securityholders. The Paying Agent shall return all
unclaimed funds to the Property Trustee and upon removal of a Paying Agent such
Paying Agent shall also return all funds in its possession to the Property
Trustee. The provisions of Sections 8.1, 8.3 and 8.6 herein shall apply to the
Bank also in its role as Paying Agent, for so long as the Bank shall act as
Paying Agent and, to the extent applicable, to any other paying agent appointed
hereunder. Any reference in this Agreement to the Paying Agent shall include any
co-paying agent unless the context requires otherwise.
Section 5.11. Ownership of Common Securities by Depositor.
At the Time of Delivery, the Depositor shall acquire and retain beneficial
and record ownership of the Common Securities. To the fullest extent permitted
by law, other than a transfer in connection with a consolidation or merger of
the Depositor into another Person, or any conveyance, transfer or lease by the
Depositor of its properties and assets substantially as an entirety to any
Person, pursuant to Section 8.1 of the Indenture, any attempted transfer of the
Common Securities shall be void. The Administrators shall cause the Common
Securities Certificate issued to the Depositor to contain a legend stating "THIS
CERTIFICATE IS NOT TRANSFERABLE".
Section 5.12. Notices to Clearing Agency.
To the extent that a notice or other communication to the Owners is
required under this Trust Agreement, unless and until Definitive Capital
Securities Certificates shall have been issued to all Owners pursuant to Section
5.4(b), the Trustees shall give all such notices and communications specified
herein to be given to Owners to the Clearing Agency, and shall have no
obligations to the Owners.
Section 5.13. Rights of Securityholders.
(a) The legal title to the Trust Property is vested exclusively in the
Property Trustee (in its capacity as such) in accordance with Section 2.9, and
the Securityholders shall not have any right or title therein other than the
undivided beneficial interest in the assets of the Trust conferred by their
Trust Securities and they shall have no right to call for any partition or
division of property, profits or rights of the Trust except as described below.
The Trust Securities shall be personal property giving only the rights
specifically set forth therein and in this Trust Agreement. The Trust Securities
shall have no preemptive or similar rights and when issued and delivered to
Securityholders against payment of the purchase price therefor will be fully
paid and nonassessable by the Trust. The Holders of the Trust Securities, in
their capacities as such, shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware.
(b) For so long as any Capital Securities remain Outstanding, if, upon a
Debenture Event of Default, the Debenture Trustee fails or the holders of not
less than 25% in principal amount of the outstanding Debentures fail to declare
the principal of all of the Debentures to be immediately due and payable, the
Holders of at least 25% in Liquidation Amount of the Capital Securities then
Outstanding shall have such right by a notice in writing to the Depositor and
the Debenture Trustee with a copy to the Property Trustee; and upon any such
declaration such principal amount of and the accrued interest on all of the
Debentures shall become immediately due and payable, provided that the payment
of principal and interest on such Debentures shall remain subordinated to the
extent provided in the Indenture.
At any time after such a declaration of acceleration with respect to the
Debentures has been made and before a judgment or decree for payment of the
money due has been obtained by the Debenture Trustee as in the Indenture
provided, the Holders of a majority in Liquidation Amount of the Capital
Securities, by written notice to the Property Trustee, the Depositor and the
Debenture Trustee, may rescind and annul such declaration and its consequences
if:
(i) the Depositor has paid or deposited with the Debenture Trustee a
sum sufficient to pay
(A) all overdue installments of interest (including any
Additional Interest (as defined in the Indenture)) on all of the
Debentures,
(B) the principal of (and premium, if any, on) any Debentures
which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the
Debentures, and
(C) all sums paid or advanced by the Debenture Trustee under
the Indenture and the reasonable compensation, expenses,
disbursements and advances of the Debenture Trustee and the Property
Trustee, their agents and counsel; and
(ii) all Events of Default with respect to the Debentures, other than
the non-payment of the principal of the Debentures which has become due
solely by such acceleration, have been cured or waived as provided in
Section 5.13 of the Indenture.
The Holders of a majority in aggregate Liquidation Amount of the Capital
Securities may, on behalf of the Holders of all the Capital Securities, waive
any past default under the Indenture, except a default in the payment of
principal or interest (unless such default has been cured and a sum sufficient
to pay all matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debenture Trustee) or a default in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each outstanding Debenture. No
such rescission shall affect any subsequent default or impair any right
consequent thereon.
Upon receipt by the Property Trustee of written notice declaring such an
acceleration, or rescission and annulment thereof, by Holders of the Capital
Securities all or part of which is represented by Book-Entry Capital Securities
Certificates, a record date shall be established for determining Holders of
Outstanding Capital Securities entitled to join in such notice, which record
date shall be at the close of business on the day the Property Trustee receives
such notice. The Holders on such record date, or their duly designated proxies,
and only such Persons, shall be entitled to join in such notice, whether or not
such Holders remain Holders after such record date; provided, that, unless such
declaration of acceleration, or rescission and annulment, as the case may be,
shall have become effective by virtue of the requisite percentage having joined
in such notice prior to the day which is 90 days after such record date, such
notice of declaration of acceleration, or rescission and annulment, as the case
may be, shall automatically and without further action by any Holder be canceled
and of no further effect. Nothing in this paragraph shall prevent a Holder, or a
proxy of a Holder, from giving, after expiration of such 90-day period, a new
written notice of declaration of acceleration, or rescission and annulment
thereof, as the case may be, that is identical to a written notice which has
been canceled pursuant to the proviso to the preceding sentence, in which event
a new record date shall be established pursuant to the provisions of this
Section 5.13(b).
(c) For so long as any Capital Securities remain Outstanding, to the
fullest extent permitted by law and subject to the terms of this Trust Agreement
and the Indenture, upon a Debenture Event of Default specified in Section 5.1(1)
or 5.1(2) of the Indenture, any Holder of Capital Securities shall have the
right to institute a proceeding directly against the Depositor, pursuant to
Section 5.9 of the Indenture, for enforcement of payment to such Holder of the
principal amount of or interest on Debentures having a principal amount equal to
the Liquidation Amount of the Capital Securities of such Holder (a "Direct
Action"). Except as set forth in Section 5.13(b) and this Section 5.13(c), the
Holders of Capital Securities shall have no right to exercise directly any right
or remedy available to the holders of, or in respect of, the Debentures.
ARTICLE VI.
Acts of Securityholders; Meetings; Voting
Section 6.1. Limitations on Voting Rights.
(a) Except as provided in this Section, in Sections 5.13, 8.10 and 10.2
and in the Indenture and as otherwise required by law, no Holder of Capital
Securities shall have any right to vote or in any manner otherwise control the
administration, operation and management of the Trust or the obligations of the
parties hereto, nor shall anything herein set forth, or contained in the terms
of the Trust Securities Certificates, be construed so as to constitute the
Securityholders from time to time as partners or members of an association.
(b) So long as any Debentures are held by the Property Trustee, the
Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or executing any
trust or power conferred on the Debenture Trustee with respect to such
Debentures, (ii) waive any past default which is waivable under Section 5.13 of
the Indenture, (iii) exercise any right to rescind or annul a declaration that
the principal of all the Debentures shall be due and payable or (iv) consent to
any amendment, modification or termination of the Indenture or the Debentures,
where such consent shall be required, without, in each case, obtaining the prior
approval of the Holders of at least a majority in Liquidation Amount of all
Outstanding Capital Securities, provided, however, that where a consent under
the Indenture would require the consent of each holder of Debentures affected
thereby, no such consent shall be given by the Property Trustee without the
prior written consent of each Holder of Capital Securities. The Trustees shall
not revoke any action previously authorized or approved by a vote of the Holders
of Capital Securities, except by a subsequent vote of the Holders of Capital
Securities. The Property Trustee shall notify all Holders of the Capital
Securities of any notice of default received from the Debenture Trustee with
respect to the Debentures. In addition to obtaining the foregoing approvals of
the Holders of the Capital Securities, prior to taking any of the foregoing
actions, the Trustees shall, at the expense of the Depositor, obtain an Opinion
of Counsel experienced in such matters to the effect that such action shall not
cause the Trust to be classified as an association taxable as a corporation for
United States Federal income tax purposes.
(c) If any proposed amendment to the Trust Agreement provides for, or the
Trustees otherwise propose to effect, (i) any action that would adversely affect
in any material respect the powers, preferences or special rights of the Capital
Securities, whether by way of amendment to the Trust Agreement or otherwise, or
(ii) the dissolution, winding-up or termination of the Trust, other than
pursuant to the terms of this Trust Agreement, then the Holders of Outstanding
Capital Securities as a class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of the Holders of at least a majority in Liquidation Amount of the
Outstanding Capital Securities. Notwithstanding any other provision of this
Trust Agreement, no amendment to this Trust Agreement may be made if, as a
result of such amendment, it would cause the Trust to fail to be classified as a
grantor trust for United States Federal income tax purposes.
Section 6.2. Notice of Meetings.
Notice of all meetings of the Capital Securityholders, stating the time,
place and purpose of the meeting, shall be given by the Property Trustee
pursuant to Section 10.8 to each Capital Securityholder of record, at his
registered address, at least 15 days and not more than 90 days before the
meeting. At any such meeting, any business properly before the meeting may be so
considered whether or not stated in the notice of the meeting. Any adjourned
meeting may be held as adjourned without further notice.
Section 6.3. Meetings of Capital Securityholders.
No annual meeting of Securityholders is required to be held. The Property
Trustee, however, shall call a meeting of Capital Securityholders to vote on any
matter upon the written request of the Capital Securityholders of record of 25%
of the Capital Securities (based upon their Liquidation Amount) and the
Administrators or the Property Trustee may, at any time in their discretion,
call a meeting of Capital Securityholders to vote on any matters as to which
Capital Securityholders are entitled to vote.
Capital Securityholders of record of 50% of the Outstanding Capital
Securities (based upon their Liquidation Amount), present in person or by proxy,
shall constitute a quorum at any meeting of Capital Securityholders.
If a quorum is present at a meeting, an affirmative vote by the Capital
Securityholders of record present, in person or by proxy, holding more than a
majority of the Capital Securities (based upon their Liquidation Amount) held by
the Capital Securityholders of record present, either in person or by proxy, at
such meeting shall constitute the action of the Capital Securityholders, unless
this Trust Agreement requires a greater number of affirmative votes.
Section 6.4. Voting Rights.
Securityholders shall be entitled to one vote for each $1,000 of
Liquidation Amount represented by their Trust Securities in respect of any
matter as to which such Securityholders are entitled to vote.
Section 6.5. Proxies, etc.
At any meeting of Securityholders, any Securityholder entitled to vote
thereat may vote by proxy, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Property Trustee, or with such
other officer or agent of the Trust as the Property Trustee may direct, for
verification prior to the time at which such vote shall be taken. If authorized
by the Property Trustee, proxies may be solicited in the name of the Property
Trustee or one or more officers of the Property Trustee. Only Securityholders of
record shall be entitled to vote. When Trust Securities are held jointly by
several Persons, any one of them may vote at any meeting in person or by proxy
in respect of such Trust Securities, but if more than one of them shall be
present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Trust Securities. A proxy purporting to be executed
by or on behalf of a Securityholder shall be deemed valid unless challenged at
or prior to its exercise, and the burden of proving invalidity shall rest on the
challenger. No proxy shall be valid more than three years after its date of
execution.
Section 6.6. Securityholder Action by Written Consent.
Any action which may be taken by Securityholders at a meeting may be taken
without a meeting if Securityholders holding more than a majority of all
Outstanding Trust Securities (based upon their Liquidation Amount) entitled to
vote in respect of such action (or such larger proportion thereof as shall be
required by any express provision of this Trust Agreement) shall consent to the
action in writing.
Section 6.7. Record Date for Voting and Other Purposes.
For the purposes of determining the Securityholders who are entitled to
notice of and to vote at any meeting or by written consent, or to participate in
any distribution on the Trust Securities in respect of which a record date is
not otherwise provided for in this Trust Agreement, or for the purpose of any
other action, the Administrators or Property Trustee may from time to time fix a
date, not more than 90 days prior to the date of any meeting of Securityholders
or the payment of a distribution or other action, as the case may be, as a
record date for the determination of the identity of the Securityholders of
record for such purposes.
Section 6.8. Acts of Securityholders.
Any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by this Trust Agreement to be given, made or
taken by Securityholders or Owners may be embodied in and evidenced by one or
more instruments of substantially similar tenor signed by such Securityholders
or Owners in person or by an agent duly appointed in writing; and, except as
otherwise expressly provided herein, such action shall become effective when
such instrument or instruments are delivered to the Property Trustee. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Securityholders or
Owners signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Trust Agreement and (subject to Section 8.1) conclusive in favor
of the Trustees, if made in the manner provided in this Section.
The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which any Trustee receiving the same deems sufficient.
The ownership of Capital Securities shall be proved by the Securities
Register.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act of the Securityholder of any Trust Security shall bind every future
Securityholder of the same Trust Security and the Securityholder of every Trust
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustees or the Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.
Without limiting the foregoing, a Securityholder entitled hereunder to
take any action hereunder with regard to any particular Trust Security may do so
with regard to all or any part of the Liquidation Amount of such Trust Security
or by one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such liquidation amount.
If any dispute shall arise between the Securityholders and the
Administrators or among such Securityholders or Trustees with respect to the
authenticity, validity or binding nature of any request, demand, authorization,
direction, consent, waiver or other Act of such Securityholder or Trustee under
this Article VI, then the determination of such matter by the Property Trustee
shall be conclusive with respect to such matter.
Section 6.9. Inspection of Records.
Upon reasonable notice to the Administrators and the Property Trustee, the
records of the Trust shall be open to inspection by Securityholders during
normal business hours for any purpose reasonably related to such
Securityholder's interest as a Securityholder.
ARTICLE VII.
Representations and Warranties
Section 7.1. Representations and Warranties of the Property Trustee
and the Delaware Trustee.
The Property Trustee and the Delaware Trustee, each severally on behalf
of and as to itself, hereby represents and warrants for the benefit of the
Depositor and the Securityholders that:
(a) the Property Trustee is a New York banking corporation duly organized,
validly existing and in good standing under the laws of the State of New York;
(b) the Property Trustee has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust Agreement
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
(c) the Delaware Trustee is a Delaware corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware;
(d) the Delaware Trustee has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust Agreement
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
(e) this Trust Agreement has been duly authorized, executed and delivered
by the Property Trustee and the Delaware Trustee and constitutes the valid and
legally binding agreement of each of the Property Trustee and the Delaware
Trustee enforceable against each of them in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles;
(f) the execution, delivery and performance of this Trust Agreement has
been duly authorized by all necessary corporate or other action on the part of
the Property Trustee and the Delaware Trustee and does not require any approval
of stockholders of the Property Trustee and the Delaware Trustee and such
execution, delivery and performance will not (i) violate the Charter or Bylaws
of the Property Trustee or the Delaware Trustee, (ii) result in the creation or
imposition of, any Lien on any properties included in the Trust Property
pursuant to the provisions of, any indenture, mortgage, credit agreement,
license or other agreement or instrument to which the Property Trustee or the
Delaware Trustee is a party or by which it is bound, or (iii) violate any law,
governmental rule or regulation of the United States or the State of Delaware,
as the case may be, governing the banking, trust or general powers of the
Property Trustee or the Delaware Trustee (as appropriate in context) or any
order, judgment or decree applicable to the Property Trustee or the Delaware
Trustee;
(g) neither the authorization, execution or delivery by the Property
Trustee or the Delaware Trustee of this Trust Agreement nor the consummation of
any of the transactions by the Property Trustee or the Delaware Trustee (as
appropriate in context) contemplated herein or therein requires the consent or
approval of, the giving of notice to, the registration with or the taking of any
other action with respect to any governmental authority or agency under any
existing Federal law governing the banking, trust or general powers of the
Property Trustee or the Delaware Trustee, as the case may be, under the laws of
the United States or the State of Delaware; and
(h) there are no proceedings pending or, to the best of each of the
Property Trustee's and the Delaware Trustee's knowledge, threatened against or
affecting the Property Trustee or the Delaware Trustee in any court or before
any governmental authority, agency or arbitration board or tribunal which, in
the good faith judgment of the Property Trustee or the Delaware Trustee, as the
case may be, individually or in the aggregate, would materially and adversely
affect the Trust or the right, power and authority of the Property Trustee or
the Delaware Trustee, as the case may be, to enter into or perform its
obligations as one of the Trustees under this Trust Agreement.
Section 7.2. Representations and Warranties of Depositor.
The Depositor hereby represents and warrants for the benefit of the
Securityholders that:
(a) the Trust Securities Certificates issued at each Time of Delivery on
behalf of the Trust have been duly authorized and will have been, duly and
validly executed, issued and delivered by the Trustees pursuant to the terms and
provisions of, and in accordance with the requirements of, this Trust Agreement
and the Securityholders will be, as of each such date, entitled to the benefits
of this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by the
Trust (or the Trustees on behalf of the Trust) under the laws of the State of
Delaware or any political subdivision thereof in connection with the execution,
delivery and performance by the Property Trustee or the Delaware Trustee, as the
case may be, of this Trust Agreement.
ARTICLE VIII.
The Trustees; the Administrators
Section 8.1. Certain Duties and Responsibilities.
(a) The duties and responsibilities of the Trustees and Administrators
shall be as provided by this Trust Agreement and, in the case of the Property
Trustee, by the Trust Indenture Act. Notwithstanding the foregoing, no provision
of this Trust Agreement shall require the Trustees or Administrators to expend
or risk their own funds or otherwise incur any financial liability in the
performance of any of their duties hereunder, or in the exercise of any of their
rights or powers, if they shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity satisfactory to it against such
risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Trust Agreement relating to the
conduct or affecting the liability of or affording protection to the Trustees or
Administrators shall be subject to the provisions of this Article. Nothing in
this Trust Agreement shall be construed to release an Administrator from
liability for its own gross negligent action, its own gross negligent failure to
act, or its own willful misconduct. To the extent that, at law or in equity, an
Administrator has duties and liabilities relating thereto to the Trust or to the
Securityholders, such Administrator shall not be liable to the Trust or to any
Securityholder for such Administrator's good faith reliance on the provisions of
this Trust Agreement. The provisions of this Trust Agreement, to the extent that
they restrict the duties and liabilities of the Administrators otherwise
existing at law or in equity, are agreed by the Depositor and the
Securityholders to replace such other duties and liabilities of the
Administrators.
(b) All payments made by the Property Trustee or a Paying Agent in respect
of the Trust Securities shall be made only from the revenue and proceeds from
the Trust Property and only to the extent that there shall be sufficient revenue
or proceeds from the Trust Property to enable the Property Trustee or a Paying
Agent to make payments in accordance with the terms hereof. Each Securityholder,
by its acceptance of a Trust Security, agrees that it will look solely to the
revenue and proceeds from the Trust Property to the extent legally available for
distribution to it as herein provided and that the Trustees are not personally
liable to it for any amount distributable in respect of any Trust Security or
for any other liability in respect of any Trust Security. This Section 8.1(b)
does not limit the liability of the Trustees expressly set forth elsewhere in
this Trust Agreement or, in the case of the Property Trustee, in the Trust
Indenture Act.
(c) No provision of this Trust Agreement shall be construed to relieve the
Property Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(i) the Property Trustee shall not be liable for any error of
judgment made in good faith by an authorized officer of the Property
Trustee, unless it shall be proved that the Property Trustee was negligent
in ascertaining the pertinent facts;
(ii) the Property Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a majority in Liquidation
Amount of the Trust Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee,
or exercising any trust or power conferred upon the Property Trustee under
this Trust Agreement;
(iii) the Property Trustee's sole duty with respect to the custody,
safe keeping and physical preservation of the Debentures and the Payment
Account shall be to deal with such property in a similar manner as the
Property Trustee deals with similar property for its own account, subject
to the protections and limitations on liability afforded to the Property
Trustee under this Trust Agreement and the Trust Indenture Act;
(iv) the Property Trustee shall not be liable for any interest on any
money received by it except as it may otherwise agree in writing with the
Depositor; and money held by the Property Trustee need not be segregated
from other funds held by it except in relation to the Payment Account
maintained by the Property Trustee pursuant to Section 3.1 and except to
the extent otherwise required by law; and
(v) the Property Trustee shall not be responsible for monitoring the
compliance by the Administrators or the Depositor with their respective
duties under this Trust Agreement, nor shall the Property Trustee be liable
for the default or misconduct of the Administrators or the Depositor.
Section 8.2. Certain Notices.
Within 90 days after the occurrence of any Event of Default actually known
to a Responsible Officer of the Property Trustee, the Property Trustee shall
transmit, in the manner and to the extent provided in Section 10.8, notice of
such Event of Default to the Securityholders, the Administrators and the
Depositor, unless such Event of Default shall have been cured or waived.
Within five Business Days after the receipt of notice of the Depositor's
exercise of its right to defer the payment of interest on the Debentures
pursuant to the Indenture, the Property Trustee shall transmit, in the manner
and to the extent provided in Section 10.8, notice of such exercise to the
Securityholders, unless such exercise shall have been revoked.
Section 8.3. Certain Rights of Property Trustee
Subject to the provisions of Section 8.1:
(a) the Property Trustee may conclusively rely and shall fully be
protected in acting or refraining from acting in good faith upon any resolution,
Opinion of Counsel, certificate, written representation of a Holder or
transferee, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties;
(b) if (i) in performing its duties under this Trust Agreement the
Property Trustee is required to decide between alternative courses of action or
(ii) in construing any of the provisions of this Trust Agreement the Property
Trustee finds the same ambiguous or inconsistent with any other provisions
contained herein or (iii) the Property Trustee is unsure of the application of
any provision of this Trust Agreement, then, except as to any matter as to which
the Capital Securityholders are entitled to vote under the terms of this Trust
Agreement, the Property Trustee shall deliver a notice to the Depositor
requesting the Depositor's opinion as to the course of action to be taken and
the Property Trustee shall take such action, or refrain from taking such action,
as the Property Trustee shall deem advisable and in the best interests of the
Securityholders, in which event the Property Trustee shall have no liability
except for its own bad faith, negligence or willful misconduct;
(c) any direction or act of the Depositor or the Administrators
contemplated by this Trust Agreement shall be sufficiently evidenced by an
Officers' Certificate;
(d) whenever in the administration of this Trust Agreement, the Property
Trustee shall deem it desirable that a matter be established before undertaking,
suffering or omitting any action hereunder, the Property Trustee (unless other
evidence is herein specifically prescribed) may, in the absence of bad faith on
its part, request and rely upon an Officers' Certificate as to factual matters
(other than the interpretation of this Agreement) which, upon receipt of such
request, shall be promptly delivered by the Depositor or the Administrators;
(e) the Property Trustee shall have no duty to see to any recording,
filing or registration of any instrument (including any financing or
continuation statement or any filing under tax or securities laws) or any
rerecording, refiling or reregistration thereof;
(f) the Property Trustee may consult with counsel of its selection (which
counsel may be counsel to the Depositor or any of its Affiliates, and may
include any of its employees) and the advice of such counsel shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon and in
accordance with such advice; the Property Trustee shall have the right at any
time to seek instructions concerning the administration of this Trust Agreement
from any court of competent jurisdiction;
(g) the Property Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Securityholders pursuant to this Trust Agreement, unless
such Securityholders shall have offered to the Property Trustee security or
indemnity reasonably satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(h) the Property Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Securityholders, but the
Property Trustee may make such further inquiry or investigation into such facts
or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through its agents or
attorneys and the Property Trustee shall not be responsible for any misconduct
or negligence on the part of, or for the supervision of, any such agent or
attorney appointed with due care by it hereunder;
(j) whenever in the administration of this Trust Agreement the Property
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder the Property
Trustee (i) may request instructions from the Holders of the Trust Securities
which instructions may only be given by the Holders of the same proportion in
Liquidation Amount of the Trust Securities as would be entitled to direct the
Property Trustee under the terms of the Trust Securities in respect of such
remedy, right or action, (ii) may refrain from enforcing such remedy or right or
taking such other action until such instructions are received, and (iii) shall
be fully protected in acting in accordance with such instructions;
(k) except as otherwise expressly provided by this Trust Agreement, the
Property Trustee shall not be under any obligation to take any action that is
discretionary under the provisions of this Trust Agreement;
(l) when the Property Trustee incurs expenses or renders services in
connection with a Bankruptcy Event, such expenses (including the fees and
expenses of its counsel) and the compensation for such services are intended to
constitute expenses of administration under any bankruptcy law or law relating
to creditors rights generally; and
(m) the Property Trustee shall not be charged with knowledge of an Event
of Default unless a Responsible Officer of the Property Trustee obtains actual
knowledge of such event or the Property Trustee receives written notice of such
event from Securityholders holding more than a majority of Capital Securities
(based upon Liquidation Amount).
No provision of this Trust Agreement shall be deemed to impose any duty or
obligation on the Property Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any jurisdiction
in which it shall be illegal, or in which the Property Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts, or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Property Trustee shall be
construed to be a duty.
Section 8.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Trust Securities Certificates
shall be taken as the statements of the Trust, and the Trustees do not assume
any responsibility for their correctness. The Trustees shall not be accountable
for the use or application by the Depositor of the proceeds of the Debentures.
Section 8.5. May Hold Securities.
Any Trustee or any other agent of any Trustee or the Trust, in its
individual or any other capacity, may become the owner or pledgee of Trust
Securities and, subject to Sections 8.8 and 8.13 and except as provided in the
definition of the term "Outstanding" in Article I, may otherwise deal with the
Trust with the same rights it would have if it were not a Trustee or such other
agent.
Section 8.6. Compensation; Indemnity; Fees.
The Depositor agrees:
(a) to pay to the Trustees from time to time such compensation as agreed
in writing between the Depositor and the Trustees for all services rendered by
them hereunder (which compensation shall not be limited by any provision of law
in regard to the compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustees upon request for all reasonable expenses, disbursements and advances
incurred or made by the Trustees in accordance with any provision of this Trust
Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(c) to the fullest extent permitted by applicable law, to indemnify and
hold harmless (i) each Trustee, (ii) any Affiliate of any Trustee, (iii) any
officer, director, shareholder, employee, representative or agent of any
Trustee, and (iv) any employee or agent of the Trust or its Affiliates (referred
to herein as an "Indemnified Person") from and against any loss, damage,
liability, tax, penalty, expense or claim of any kind or nature whatsoever
incurred by such Indemnified Person by reason of the creation, operation or
termination of the Trust or any act or omission performed or omitted by such
Indemnified Person in good faith on behalf of the Trust and in a manner such
Indemnified Person reasonably believed to be within the scope of authority
conferred on such Indemnified Person by this Trust Agreement, except that no
Indemnified Person shall be entitled to be indemnified in respect of any loss,
damage or claim incurred by such Indemnified Person by reason of negligence or
willful misconduct with respect to such acts or omissions.
The provisions of this Section 8.6 shall survive the termination of this
Trust Agreement or the earlier resignation or removal of any Trustee.
No Trustee may claim any lien or charge on any Trust Property as a result
of any amount due pursuant to this Section 8.6.
The Depositor and any Trustee (in the case of the Property Trustee,
subject to Section 8.8 hereof) may engage in or possess an interest in other
business ventures of any nature or description, independently or with others,
similar or dissimilar to the business of the Trust, and the Trust and the
Holders of Trust Securities shall have no rights by virtue of this Trust
Agreement in and to such independent ventures or the income or profits derived
therefrom, and the pursuit of any such venture, even if competitive with the
business of the Trust, shall not be deemed wrongful or improper. Neither the
Depositor, nor any Trustee, shall be obligated to present any particular
investment or other opportunity to the Trust even if such opportunity is of a
character that, if presented to the Trust, could be taken by the Trust, and the
Depositor or any Trustee shall have the right to take for its own account
(individually or as a partner or fiduciary) or to recommend to others any such
particular investment or other opportunity. Any Trustee may engage or be
interested in any financial or other transaction with the Depositor or any
Affiliate of the Depositor, or may act as depository for, trustee or agent for,
or act on any committee or body of holders of, securities or other obligations
of the Depositor or its Affiliates.
Section 8.7. Corporate Property Trustee Required; Eligibility of
Trustees and Administrators.
(a) There shall at all times be a Property Trustee hereunder with respect
to the Trust Securities. The Property Trustee shall be a Person that is a
national or state chartered bank and eligible pursuant to the Trust Indenture
Act to act as such, shall have a combined capital and surplus of at least
$50,000,000 and at the time of appointment shall have unsecured securities rated
in one of the three highest rating categories by a nationally recognized
statistical rating organization. If any such Person publishes reports of
condition at least annually, pursuant to law or to the requirements of its
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such Person shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Property Trustee with respect to the Trust
Securities shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article. At the time of appointment, the Property
Trustee must have securities rated in one of the three highest rating categories
by a nationally recognized statistical rating organization.
(b) There shall at all times be one or more Administrators hereunder with
respect to the Trust Securities. Each Administrator shall be either a natural
person who is at least 21 years of age or a legal entity that shall act through
one or more persons authorized to bind that entity.
(c) There shall at all times be a Delaware Trustee with respect to the
Trust Securities. The Delaware Trustee shall either be (i) a natural person who
is at least 21 years of age and a resident of the State of Delaware or (ii) a
legal entity with its principal place of business in the State of Delaware and
that otherwise meets the requirements of applicable Delaware law that shall act
through one or more persons authorized to bind such entity.
Section 8.8. Conflicting Interests.
If the Property Trustee has or shall acquire a conflicting interest within
the meaning of the Trust Indenture Act, the Property Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Trust
Agreement.
Section 8.9. Co-Trustees and Separate Trustee.
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of any
jurisdiction in which any part of the Trust Property may at the time be located,
the Property Trustee shall have power to appoint, and upon the written request
of the Property Trustee, the Depositor and the Administrators shall for such
purpose join in the execution, delivery, and performance of all instruments and
agreements necessary or proper to appoint, one or more Persons approved by the
Property Trustee either to act as co-trustee, jointly with the Property Trustee,
of all or any part of such Trust Property, or to the extent required by law to
act as separate trustee of any such property, in either case with such powers as
may be provided in the instrument of appointment, and to vest in such Person or
Persons in the capacity aforesaid, any property, title, right or power deemed
necessary or desirable, subject to the other provisions of this Section. Any
co-trustee or separate trustee appointed pursuant to this Section shall either
be (i) a natural person who is at least 21 years of age and a resident of the
United States or (ii) a legal entity with its principal place of business in the
United States that shall act through one or more persons authorized to bind such
entity.
Should any written instrument from the Depositor be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right, or power, any and
all such instruments shall, on request, be executed, acknowledged and delivered
by the Depositor.
Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following terms,
namely:
(a) The Trust Securities shall be executed and delivered and all rights,
powers, duties, and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustees specified hereunder shall be exercised
solely by such Trustees and not by such co-trustee or separate trustee.
(b) The rights, powers, duties, and obligations hereby conferred or
imposed upon the Property Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed by the
Property Trustee or by the Property Trustee and such co-trustee or separate
trustee jointly, as shall be provided in the instrument appointing such
co-trustee or separate trustee, except to the extent that under any law of any
jurisdiction in which any particular act is to be performed, the Property
Trustee shall be incompetent or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be exercised and performed by
such co-trustee or separate trustee.
(c) The Property Trustee at any time, by an instrument in writing executed
by it, with the written concurrence of the Depositor, may accept the resignation
of or remove any co-trustee or separate trustee appointed under this Section,
and, in case a Debenture Event of Default has occurred and is continuing, the
Property Trustee shall have the power to accept the resignation of, or remove,
any such co-trustee or separate trustee without the concurrence of the
Depositor. Upon the written request of the Property Trustee, the Depositor shall
join with the Property Trustee in the execution, delivery and performance of all
instruments and agreements necessary or proper to effectuate such resignation or
removal. A successor to any co-trustee or separate trustee so resigned or
removed may be appointed in the manner provided in this Section.
(d) No co-trustee or separate trustee hereunder shall be personally liable
by reason of any act or omission of the Property Trustee or any other trustee
hereunder.
(e) The Property Trustee shall not be liable by reason of any act of a
co-trustee or separate trustee.
(f) Any Act of Holders delivered to the Property Trustee shall be deemed
to have been delivered to each such co-trustee and separate trustee.
Section 8.10. Resignation and Removal; Appointment of Successor.
No resignation or removal of any Trustee (the "Relevant Trustee") and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 8.11.
Subject to the immediately preceding paragraph, a Relevant Trustee may
resign at any time by giving written notice thereof to the Securityholders and
by appointing a successor Relevant Trustee. The Property Trustee shall appoint a
successor by requesting from at least three Persons meeting the eligibility
requirements, its expenses and charges to serve as the Property Trustee on a
form provided by the Administrators, and selecting the Person who agrees to the
lowest expense and charges. If the instrument of acceptance by the successor
Trustee required by Section 8.11 shall not have been delivered to the Relevant
Trustee within 30 days after the giving of such notice of resignation, the
Relevant Trustee may petition, at the expense of the Trust, any court of
competent jurisdiction for the appointment of a successor Relevant Trustee. The
Property Trustee shall have no liability for the selection of such successor
pursuant to this Section 8.10.
The Property Trustee or the Delaware Trustee, or both of them, may be
removed by Act of the Holders of a majority in Liquidation Amount of the Capital
Securities, delivered to the Relevant Trustee (in its individual capacity and on
behalf of the Trust) (i) upon the occurrence of an Event of Default described in
subparagraph (d) of the definition thereof with respect to the Relevant Trustee
or (ii) if a Debenture Event of Default shall have occurred and be continuing at
any time. If the instrument of acceptance by the successor Trustee required by
Section 8.11 shall not have been delivered to the Relevant Trustee within 30
days after the giving of such notice of removal, the Relevant Trustee may
petition, at the expense of the Trust, any court of competent jurisdiction for
the appointment of a successor Relevant Trustee. The Property Trustee shall have
no liability for the selection of such successor pursuant to this Section 8.10.
If any Trustee shall resign and shall not have appointed its successor, be
removed or become incapable of acting as Trustee, or if a vacancy shall occur in
the office of any Trustee for any cause, the Capital Securityholders, by Act of
the Securityholders of at least 25% in Liquidation Amount of the Capital
Securities then Outstanding delivered to the retiring Relevant Trustee, shall
promptly appoint a successor Relevant Trustee or Trustees, and such successor
Trustee shall comply with the applicable requirements of Section 8.11. If no
successor Relevant Trustee shall have been so appointed by the Capital
Securityholders and accepted appointment in the manner required by Section 8.11,
the Property Trustee or any Securityholder who has been a Securityholder of
Trust Securities for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Relevant Trustee.
The Property Trustee shall give notice of each resignation and each
removal of a Trustee and each appointment of a successor Trustee to all
Securityholders in the manner provided in Section 10.8 and shall give notice to
the Depositor. Each notice shall include the name of the successor Relevant
Trustee and the address of its Corporate Trust Office if it is the Property
Trustee.
Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event a Delaware Trustee who is a natural person dies or
becomes incompetent or incapacitated, the vacancy created by such death,
incompetence or incapacity may be filled by the Property Trustee following the
procedures in Section 8.10 (with the successor being a Person who satisfies the
eligibility requirement for a Delaware Trustee set forth in Section 8.7).
Section 8.11. Acceptance of Appointment by Successor.
In case of the appointment hereunder of a successor Relevant Trustee, the
retiring Relevant Trustee and each successor Relevant Trustee with respect to
the Trust Securities shall execute and deliver an amendment hereto wherein each
successor Relevant Trustee shall accept such appointment and which (a) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Relevant Trustee all the rights,
powers, trusts and duties of the retiring Relevant Trustee with respect to the
Trust Securities and the Trust and (b) shall add to or change any of the
provisions of this Trust Agreement as shall be necessary to provide for or
facilitate the administration of the Trust by more than one Relevant Trustee, it
being understood that nothing herein or in such amendment shall constitute such
Relevant Trustees co-trustees and upon the execution and delivery of such
amendment the resignation or removal of the retiring Relevant Trustee shall
become effective to the extent provided therein and each such successor Relevant
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Relevant Trustee; but,
on request of the Trust or any successor Relevant Trustee such retiring Relevant
Trustee shall duly assign, transfer and deliver to such successor Relevant
Trustee all Trust Property, all proceeds thereof and money held by such retiring
Relevant Trustee hereunder with respect to the Trust Securities and the Trust.
Upon request of any such successor Relevant Trustee, the Trust shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Relevant Trustee all such rights, powers and trusts
referred to in the first or second preceding paragraph, as the case may be.
No successor Relevant Trustee shall accept its appointment unless at the
time of such acceptance such successor Relevant Trustee shall be qualified and
eligible under this Article.
Section 8.12. Merger, Conversion, Consolidation or Succession
to Business.
Any Person into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Relevant
Trustee shall be a party, or any Person succeeding to all or substantially all
the corporate trust business of such Relevant Trustee, shall be the successor of
such Relevant Trustee hereunder, provided such Person shall be otherwise
eligible under this Article, without the execution or filing of any paper or any
further act on the part of any of the parties hereto.
Section 8.13. Preferential Collection of Claims Against Depositor
or Trust.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
similar judicial proceeding relative to the Trust or any other obligor upon the
Trust Securities or the property of the Trust or of such other obligor or their
creditors, the Property Trustee (irrespective of whether any Distributions on
the Trust Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Property Trustee shall
have made any demand on the Trust for the payment of any past due Distributions)
shall be entitled and empowered, to the fullest extent permitted by law, by
intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of any Distributions
owing and unpaid in respect of the Trust Securities and to file such other
papers or documents as may be necessary or advisable in order to have the claims
of the Property Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Property Trustee, its agents and
counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Property Trustee and, in the event the
Property Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Property Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Property Trustee, its
agents and counsel, and any other amounts due the Property Trustee.
Nothing herein contained shall be deemed to authorize the Property Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement adjustment or compensation affecting the Trust
Securities or the rights of any Holder thereof or to authorize the Property
Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 8.14. Reports by Property Trustee.
(a) Not later than 60 days after May 15 of each year commencing with May
15, 1997, the Property Trustee shall transmit to all Securityholders in
accordance with Section 10.8, and to the Depositor, a brief report dated as of
the immediately preceding December 31 with respect to:
(i) its eligibility under Section 8.7 or, in lieu thereof, if to the
best of its knowledge it has continued to be eligible under said Section, a
written statement to such effect; and
(ii) any change in the property and funds in its possession as
Property Trustee since the date of its last report and any action taken by
the Property Trustee in the performance of its duties hereunder which it
has not previously reported and which in its opinion materially affects the
Trust Securities.
(b) In addition the Property Trustee shall transmit to Securityholders
such reports concerning the Property Trustee and its actions under this Trust
Agreement as may be required pursuant to the Trust Indenture Act at the times
and in the manner provided pursuant thereto.
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Property Trustee with the Depositor.
Section 8.15. Reports to the Property Trustee.
The Depositor and the Administrators on behalf of the Trust shall provide
to the Property Trustee such documents, reports and information as required by
Section 314 of the Trust Indenture Act (if any) and the compliance certificate
required by Section 314(a) of the Trust Indenture Act in the form, in the manner
and at the times required by Section 314 of the Trust Indenture Act.
Section 8.16. Evidence of Compliance with Conditions Precedent.
Each of the Depositor and the Administrators on behalf of the Trust shall
provide to the Property Trustee such evidence of compliance with any conditions
precedent, if any, provided for in this Trust Agreement that relate to any of
the matters set forth in Section 314 (c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c)(1) of the Trust Indenture Act shall be given in the form of an Officers'
Certificate.
Section 8.17. Number of Trustees.
(a) The number of Trustees shall be two. The Property Trustee and the
Delaware Trustee may be the same Person.
(b) If a Trustee ceases to hold office for any reason a vacancy shall
occur. The vacancy shall be filled with a Trustee appointed in accordance with
Section 8.10.
(c) The death, resignation, retirement, removal, bankruptcy, incompetence
or incapacity to perform the duties of a Trustee shall not operate to annul,
dissolve or terminate the Trust.
Section 8.18. Delegation of Power.
(a) Any Administrator may, by power of attorney consistent with applicable
law, delegate to any other natural person over the age of 21 his or her power
for the purpose of executing any documents contemplated in Section 2.7(a),
including any registration statement or amendment thereto filed with the
Commission, or making any other governmental filing; and
(b) The Administrators shall have power to delegate from time to time to
such of their number the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Administrators
or otherwise as the Administrators may deem expedient, to the extent such
delegation is not prohibited by applicable law or contrary to the provisions of
this Trust Agreement, as set forth herein.
Section 8.19. Appointment of Administrators.
(a) The Administrators shall be appointed by the Common Securityholder and
may be removed by the Common Securityholder at any time. Each Administrator
shall sign an agreement agreeing to comply with the terms of this Trust
Agreement. If at any time there is no Administrator, the Property Trustee or any
Securityholder who has been a Securityholder of Trust Securities for at least
six months may petition any court of competent jurisdiction for the appointment
of one or more Administrators.
(b) Whenever a vacancy in the number of Administrators shall occur, until
such vacancy is filled by the appointment of an Administrator in accordance with
this Section 8.19, the Administrators in office, regardless of their number (and
notwithstanding any other provision of this Agreement), shall have all the
powers granted to the Administrators and shall discharge all the duties imposed
upon the Administrators by this Trust Agreement.
Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrator who is a natural person dies or
becomes, in the opinion of the Common Securityholder, incompetent or
incapacitated, the vacancy created by such death, incompetence or incapacity may
be filled by the unanimous act of the remaining Administrators if there were at
least two of them prior to such vacancy (with the successor in each case being a
Person who satisfies the eligibility requirement for Administrators set forth in
Section 8.7).
ARTICLE IX.
Termination, Liquidation and Merger
Section 9.1. Termination Upon Expiration Date.
Unless earlier terminated, the Trust shall automatically terminate on
December 31, 2045 (the "Expiration Date"), following the distribution of the
Trust Property in accordance with Section 9.4.
Section 9.2. Early Termination
The first to occur of any of the following events is an "Early Termination
Event":
(a) the occurrence of a Bankruptcy Event in respect of, or the dissolution
or liquidation of, the Depositor;
(b) the written direction to the Property Trustee from the Holder of the
Common Securities at any time to terminate the Trust and, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, distribute
Debentures to Securityholders in exchange for the Capital Securities; provided,
however, that the Property Trustee shall have first received an Opinion of
Counsel to the effect that such distribution will not be a taxable event to the
Holders;
(c) the redemption of all of the Capital Securities in connection with the
redemption of all the Debentures; and
(d) the entry of an order for dissolution of the Trust by a court of
competent jurisdiction.
Section 9.3. Termination.
The respective obligations and responsibilities of the Trustees and the
Trust created and continued hereby shall terminate upon the latest to occur of
the following: (a) the distribution by the Property Trustee to Securityholders
upon the liquidation of the Trust pursuant to Section 9.4, or upon the
redemption of all of the Trust Securities pursuant to Section 4.2, of all
amounts required to be distributed hereunder upon the final payment of the Trust
Securities; (b) the payment of any expenses owed by the Trust; and (c) the
discharge of all administrative duties of the Administrators, including the
performance of any tax reporting obligations with respect to the Trust or the
Securityholders.
Section 9.4. Liquidation.
(a) If an Early Termination Event specified in clause (a), (b) or (d) of
Section 9.2 occurs or upon the Expiration Date, the Trust shall be liquidated by
the Trustees as expeditiously as the Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, to each Securityholder a Like Amount of Debentures,
subject to Section 9.4(d). Notice of liquidation shall be given by the Property
Trustee by first-class mail, postage prepaid mailed not later than 30 nor more
than 60 days prior to the Liquidation Date to each Holder of Trust Securities at
such Holder's address appearing in the Securities Register.
All notices of liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities will no longer be deemed to be Outstanding and any Trust
Securities Certificates not surrendered for exchange will be deemed to
represent a Like Amount of Debentures; and
(iii) provide such information with respect to the mechanics by which
Holders may exchange Trust Securities Certificates for Debentures, or if
Section 9.4(d) applies receive a Liquidation Distribution, as the Property
Trustee (after consultation with the Administrators) shall deem
appropriate.
(b) Except where Section 9.2(c) or 9.4(d) applies, in order to effect the
liquidation of the Trust and distribution of the Debentures to Securityholders,
the Property Trustee, either itself acting as exchange agent or through the
appointment of a separate exchange agent, shall establish such procedures as it
shall deem appropriate to effect the distribution of Debentures in exchange for
the Outstanding Trust Securities Certificates.
(c) Except where Section 9.2(c) or 9.4(d) applies, after the Liquidation
Date, (i) the Trust Securities will no longer be deemed to be Outstanding, (ii)
certificates representing a Like Amount of Debentures will be issued to holders
of Trust Securities Certificates, upon surrender of such certificates to the
exchange agent for exchange, (iii) any Trust Securities Certificates not so
surrendered for exchange will be deemed to represent a Like Amount of
Debentures, accruing interest at the rate provided for in the Debentures from
the last Distribution Date on which a Distribution was made on such Trust
Securities Certificates until such certificates are so surrendered (and until
such certificates are so surrendered, no payments of interest or principal will
be made to Holders of Trust Securities Certificates with respect to such
Debentures) and (iv) all rights of Securityholders holding Trust Securities will
cease, except the right of such Securityholders to receive Debentures upon
surrender of Trust Securities Certificates.
(d) In the event that, notwithstanding the other provisions of this
Section 9.4, whether because of an order for dissolution entered by a court of
competent jurisdiction or otherwise, distribution of the Debentures in the
manner provided herein is determined by the Property Trustee not to be
practical, the Trust Property shall be liquidated, and the Trust shall be
dissolved, wound-up or terminated, by the Property Trustee in such manner as the
Property Trustee determines. In such event, on the date of the dissolution,
winding-up or other termination of the Trust, Securityholders will be entitled
to receive out of the assets of the Trust available for distribution to
Securityholders, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, an amount equal to the Liquidation Amount per Trust
Security plus accumulated and unpaid Distributions thereon to the date of
payment (such amount being the "Liquidation Distribution"). If, upon any such
dissolution, winding up or termination, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then, subject to the next succeeding
sentence, the amounts payable by the Trust on the Trust Securities shall be paid
on a pro rata basis (based upon Liquidation Amounts). The holder of the Common
Securities will be entitled to receive Liquidation Distributions upon any such
dissolution, winding-up or termination pro rata (determined as aforesaid) with
Holders of Capital Securities, except that, if a Debenture Event of Default has
occurred and is continuing, the Capital Securities shall have a priority over
the Common Securities. Any such determination and liquidation by the Property
Trustee shall be conclusive upon the Securityholders and the Property Trustee
shall have no liability in connection therewith.
Section 9.5. Mergers, Consolidations, Amalgamations or Replacements
of the Trust.
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other body, except pursuant
to Article IX. At the request of the Holder of the Common Securities, with the
consent of the Holders of a majority (based on Liquidation Amounts) of the
Capital Securities, the Property Trustee or the Delaware Trustee, the Trust may
merge with or into, consolidate, amalgamate, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to a
trust organized as such under the laws of any State; provided, that (i) such
successor entity either (a) expressly assumes all of the obligations of the
Trust with respect to the Capital Securities or (b) substitutes for the Capital
Securities other securities having substantially the same terms as the Capital
Securities (the "Successor Securities") so long as the Successor Securities rank
the same as the Capital Securities rank in priority with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) the
Holders of a majority (based on Liquidation Amounts) of Capital Securities
appoints a trustee of such successor entity possessing the same powers and
duties as the Property Trustee as the holder of the Debentures, (iii) the
Successor Securities are listed or traded, or any Successor Securities will be
listed upon notification of issuance, on any national securities exchange or
other organization on which the Capital Securities are then listed or traded, if
any, (iv) such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not cause the Capital Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, (v) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Capital Securities (including any Successor
Securities) in any material respect, (vi) such successor entity has a purpose
substantially identical to that of the Trust, (vii) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, the
Depositor and the Property Trustee have received an Opinion of Counsel to the
effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Capital Securities (including any Successor
Securities) in any material respect, and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
the Trust nor such successor entity will be required to register as an
investment company under the 1940 Act and (viii) the Depositor owns all of the
common securities of such successor entity and guarantees the obligations of
such successor entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not,
except with the consent of holders of 100% in Liquidation Amount of the Capital
Securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to, any other entity or permit any other entity to consolidate, amalgamate,
merge with or into, or replace it if such consolidation, amalgamation, merger,
replacement, conveyance, transfer or lease would cause the Trust or the
successor entity to be classified as other than a grantor trust for United
States Federal income tax purposes.
ARTICLE X.
Miscellaneous Provisions
Section 10.1. Limitation of Rights of Securityholders
The death or incapacity of any person having an interest, beneficial or
otherwise, in Trust Securities shall not operate to terminate this Trust
Agreement, nor entitle the legal representatives or heirs of such person or any
Securityholder for such person, to claim an accounting, take any action or bring
any proceeding in any court for a partition or winding up of the arrangements
contemplated hereby, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.
Section 10.2. Amendment.
(a) This Trust Agreement may be amended from time to time by the Property
Trustee, the Delaware Trustee and the Common Securityholders without the consent
of the Depositor or any Capital Securityholders, (i) to cure any ambiguity,
correct or supplement any provision herein which may be inconsistent with any
other provision herein, or to make any other provisions with respect to matters
or questions arising under this Trust Agreement, which shall not be inconsistent
with the other provisions of this Trust Agreement, or (ii) to modify, eliminate
or add to any provisions of this Trust Agreement to such extent as shall be
necessary to ensure that the Trust will be classified for United States Federal
income tax purposes as a grantor trust at all times that any Trust Securities
are outstanding or to ensure that the Trust will not be required to register as
an investment company under the 1940 Act; provided, however, that such action
shall not adversely affect in any material respect the interests of any
Securityholder, and any amendments of this Trust Agreement shall become
effective when notice thereof is given to the Securityholders.
(b) Except as provided in Section 10.2(c) hereof, any provision of this
Trust Agreement may be amended by the Trustees and the Holder of Common
Securities (without execution of any amendment by the Depositor) and with (i)
the consent of Capital Securityholders representing not less than a majority
(based upon Liquidation Amounts) of the Capital Securities then Outstanding and
(ii) receipt by the Trustees of an Opinion of Counsel to the effect that such
amendment or the exercise of any power granted to the Trustees in accordance
with such amendment will not affect the Trust's status as a grantor trust for
United States Federal income tax purposes or the Trust's exemption from status
of an investment company under the 1940 Act.
(c) In addition to and notwithstanding any other provision in this Trust
Agreement, without the consent of each affected Securityholder (such consent
being obtained in accordance with Section 6.3 or 6.6 hereof), this Trust
Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount of
any Distribution required to be made in respect of the Trust Securities as of a
specified date or (ii) restrict the right of a Securityholder to institute suit
for the enforcement of any such payment on or after such date; notwithstanding
any other provision herein, without the unanimous consent of the Securityholders
(such consent being obtained in accordance with Section 6.3 or 6.6 hereof), this
paragraph (c) of this Section 10.2 may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no
Trustee shall enter into or consent to any amendment to this Trust Agreement
which would cause the Trust to fail or cease to qualify for the exemption from
status of an investment company under the 1940 Act or fail or cease to be
classified as a grantor trust for United States Federal income tax purposes.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor, this Trust Agreement may not be amended in
a manner which imposes any additional obligation on the Depositor.
(f) In the event that any amendment to this Trust Agreement is made, the
Administrators or the Property Trustee shall promptly provide to the Depositor a
copy of such amendment.
(g) Neither the Property Trustee nor the Delaware Trustee shall be
required to enter into any amendment to this Trust Agreement which affects its
own rights, duties or immunities under this Trust Agreement or would otherwise
expose the Property Trustee to any liability or be contrary to applicable law.
The Property Trustee shall be entitled to receive an Opinion of Counsel and an
Officers' Certificate stating that any amendment to this Trust Agreement is in
compliance with this Trust Agreement.
Section 10.3. Separability.
In case any provision in this Trust Agreement or in the Trust Securities
Certificates shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 10.4. Governing Law.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT
AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF DELAWARE. THE PROVISIONS OF SECTION 3540 AND 3561 OF
TITLE 12 OF THE DELAWARE CODE SHALL NOT APPLY TO THIS TRUST.
Section 10.5. Payments Due on Non-Business Day.
If the date fixed for any payment on any Trust Security shall be a day
that is not a Business Day, then such payment need not be made on such date but
may be made on the next succeeding day that is a Business Day (except as
otherwise provided in Sections 4.1(a) and 4.2(d)), with the same force and
effect as though made on the date fixed for such payment, and no interest shall
accrue thereon for the period after such date.
Section 10.6. Successors.
This Trust Agreement shall be binding upon and shall inure to the benefit
of any successor to the Depositor, the Trust or the Relevant Trustee, including
any successor by operation of law. Except in connection with a consolidation,
merger or sale involving the Depositor that is permitted under Article Eight of
the Indenture and pursuant to which the assignee agrees in writing to perform
the Depositor's obligations hereunder, the Depositor shall not assign its
obligations hereunder.
Section 10.7. Headings.
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement.
Section 10.8. Reports, Notices and Demands.
Any report, notice, demand or other communication which by any provision
of this Trust Agreement is required or permitted to be given or served to or
upon any Securityholder or the Depositor may be given or served in writing by
deposit thereof, first-class postage prepaid, in the United States mail, hand
delivery or facsimile transmission, in each case, addressed, (a) in the case of
a Capital Securityholder, to such Capital Securityholder as such
Securityholder's name and address may appear on the Securities Register; and (b)
in the case of the Common Securityholder or the Depositor, to USF&G Corporation,
100 Light Street, Baltimore, Maryland, 21201 Attention: Treasurer, facsimile
no.: (410) 547-3611. Any notice to Capital Securityholders may also be given to
such Owners as have, within two years preceding the giving of such notice, filed
their names and addresses with the Property Trustee for that purpose. Such
notice, demand or other communication to or upon a Securityholder shall be
deemed to have been sufficiently given or made, for all purposes, upon hand
delivery, mailing or transmission.
Any notice, demand or other communication which by any provision of this
Trust Agreement is required or permitted to be given or served to or upon the
Trust, the Property Trustee, the Delaware Trustee or the Administrators shall be
given in writing by deposit thereof, first class postage prepaid, in the United
States mail, hand delivery or overnight courier or by facsimile transmission
(confirmed by delivery of the original), in each case, addressed (until another
address is published by the Trust) as follows: (a) with respect to the Trust, to
the Delaware Trustee, the Property Trustee, and the Administrators at their
respective addresses set forth below; (b) with respect to the Property Trustee
to The Bank of New York, 101 Barclay Street, Floor 21W, New York, New York
10286, Attention: Corporate Trust Trustee Administration; (c) with respect to
the Delaware Trustee, to The Bank of New York (Delaware), White Clay Center,
Route 273, Newark, Delaware 19711; and (d) with respect to the Administrators,
to them at the address above for notices to the Depositor, marked "Attention
Administrators of USF&G Capital I." Such notice, demand or other communication
to or upon the Trust or the Property Trustee shall be deemed to have been
sufficiently given or made only upon actual receipt of the writing by the Trust
or the Property Trustee.
Section 10.9. Agreement Not to Petition.
Each of the Trustees and the Depositor agree for the benefit of the
Securityholders that, until at least one year and one day after the Trust has
been terminated in accordance with Article IX, they shall not file, or join in
the filing of, a petition against the Trust under any bankruptcy, insolvency,
reorganization or other similar law (including, without limitation, the United
States Bankruptcy Code) (collectively, "Bankruptcy Laws") or otherwise join in
the commencement of any proceeding against the Trust under any Bankruptcy Law.
In the event the Depositor takes action in violation of this Section 10.9, the
Property Trustee agrees, for the benefit of Securityholders, that at the expense
of the Depositor, it shall file an answer with the bankruptcy court or otherwise
properly contest the filing of such petition by the Depositor against the Trust
or the commencement of such action and raise the defense that the Depositor has
agreed in writing not to take such action and should be stopped and precluded
therefrom and such other defenses, if any, as counsel for the Trustees or the
Trust may assert. The provisions of this Section 10.9 shall survive the
termination of this Trust Agreement.
Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act.
(a) The Trust Indenture Act shall apply as a matter of contract to this
Trust Agreement for purposes of interpretation, construction and defining the
rights and obligations hereunder.
(b) The Property Trustee shall be the only Trustee which is a trustee for
the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Trust Agreement by any
of the provisions of the Trust Indenture Act, such required provision shall
control. If any provision of this Trust Agreement modifies or excludes any
provision of the Trust Indenture Act which may be so modified or excluded, the
latter provision shall be deemed to apply to this Trust Agreement as so modified
or excluded, as the case may be.
(d) The application of the Trust Indenture Act to this Trust Agreement
shall not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
Section 10.11. Acceptance of Terms of Trust Agreement, Guarantee
and Indenture.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY
OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE
OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL
ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN
SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND
AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND
THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH
SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST
AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND
SUCH SECURITYHOLDER AND SUCH OTHERS.
USF&G CORPORATION
By:
Name: Dan L. Hale
Title: Executive Vice President,
Chief Financial Officer
The Bank of New York,
as Property Trustee
By:
Name:
Title:
The Bank of New York (Delaware),
as Delaware Trustee
By:
Name:
Title:
The Administrators
----------------------------------
J. Kendall Huber, as Administrator
----------------------------------
John F. Hoffen, Jr., as Administrator
----------------------------------
Toby Slodden, as Administrator
EXHIBIT A
CERTIFICATE OF TRUST
OF
USF&G CAPITAL I
THIS CERTIFICATE OF TRUST of USF&G Capital I (the "Trust"), dated December
28, 1995, is being duly executed and filed by the undersigned, as trustees, to
form a business trust under the Delaware Business Trust Act (12 Del.C.(S)3801 et
seq.).
(i) Name. The name of the business trust being formed hereby is USF&G
Capital I.
(ii) Delaware Trustee. The name and business address of the trustee of the
Trust with a principal place of business in the State of Delaware are The Bank
of New York (Delaware), Route 273, White Clay Center, Newark, Delaware 19711.
(iii) Counterparts. This Certificate of Trust may be executed in one or
more counterparts, all of which together shall constitute one and the same
instrument.
(iv) Effective Date. This Certificate of Trust shall be effective as of
its filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust, have
executed this Certificate of Trust as of the date first above written.
THE BANK OF NEW YORK,
as Trustee
--------------------------
By_________________________________
Name: ________________________
Title: _________________________
THE BANK OF NEW YORK (DELAWARE),
as Trustee
By_________________________________
Name:______________________________
Title:_____________________________
EXHIBIT B
CERTIFICATE OF DEPOSITORY AGREEMENT
OF
USF&G CAPITAL I
December 24, 1996
The Depository Trust Company
55 Water Street, 49th Floor
New York, New York 10041-0099
Attention: Debra Hawksby
General Counsel's Office
Re:USF&G Capital I 8 1/2% Capital Securities, Series A
Ladies and Gentlemen:
The purpose of this letter is to set forth certain matters relating to the
issuance and deposit with The Depository Trust Company ("DTC") of the USF&G
Capital I 8 1/2% Capital Securities, Series A (the "Capital Securities"), of
USF&G Capital I, a Delaware business trust (the "Issuer"), created pursuant to a
Trust Agreement between USF&G Corporation ("USF&G"), The Bank of New York, as
Property Trustee and The Bank of New York (Delaware), as Delaware Trustee. The
payment of distributions on the Capital Securities, and payments due upon
liquidation of the Issuer or redemption of the Capital Securities, to the extent
the Issuer has funds available for the payment thereof are guaranteed by USF&G
to the extent set forth in a Guarantee Agreement dated December 19, 1996 by
USF&G with respect to the Capital Securities. USF&G and the Issuer propose to
sell the Capital Securities to Initial Purchasers (the "Initial Purchasers")
pursuant to a Purchase Agreement dated December __, 1996 by and among the
Initial Purchasers, the Issuer and USF&G, and the Initial Purchasers wish to
take delivery of all or a portion of the Capital Securities through DTC. The
Bank of New York is acting as transfer agent and registrar with respect to the
Capital Securities (the "Transfer Agent and Registrar").
To induce DTC to accept the Capital Securities as eligible for deposit at
DTC, and to act in accordance with DTC's rules with respect to the Capital
Securities, the Issuer and the Transfer Agent and Registrar make the following
representations to DTC:
1. Prior to the closing of the sale of the Capital Securities to the
Initial Purchasers, which is expected to occur on December 29, 1996, there shall
be deposited with DTC one or more global certificates (individually and
collectively, the "Global Certificate") registered in the name of DTC's nominee,
Cede & Co., representing an aggregate of up to 100,000 Capital Securities and
bearing the following legend:
Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to Issuer or its
agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other
name as is requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or to such other entity as is requested by an
authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as
the registered owner hereof, Cede & Co., has an interest herein.
Capital Securities will be issued, and may be transferred, only in blocks
having not less than 100 Capital Securities.
2. The Amended and Restated Trust Agreement of the Issuer provides for the
voting by holders of the Capital Securities under certain limited circumstances
(with no provision for revocation of consents or votes by subsequent holders).
The Issuer shall establish a record date for such purposes and shall, to the
extent possible, give DTC notice of such record date not less than 15 calendar
days in advance of such record date.
3. In the event of a stock split, conversion, recapitalization,
reorganization or any other similar transaction resulting in the cancellation of
all or any part of the Capital Securities outstanding, the Issuer or the
Transfer Agent and Registrar shall send DTC a notice of such event at least five
business days prior to the effective date of such event.
4. In the event of distribution on, or an offering or issuance of rights
with respect to, the Capital Securities outstanding, the Issuer or the Transfer
Agent and Registrar shall send DTC a notice specifying: (a) the amount of and
conditions, if any, applicable to the payment of any such distribution or any
such offering or issuance of rights; (b) any applicable expiration or deadline
date, or any date by which any action on the part of the holders of Capital
Securities is required; and (c) the date any required notice is to be mailed by
or on behalf of the Issuer to holders of Capital Securities or published by or
on behalf of the Issuer (whether by mail or publication, the "Publication
Date"). Such notice shall be sent to DTC by a secure means (e.g., legible
telecopy, registered or certified mail, overnight delivery) in a timely manner
designed to assure that such notice is in DTC's possession no later than the
close of business on the business day before the Publication Date. The Issuer or
the Transfer Agent and Registrar will forward such notice either in a separate
secure transmission for each CUSIP number or in a secure transmission of
multiple CUSIP number submitted in that transmission. (The party sending such
notice shall have a method to verify subsequently the use of such means and the
timeliness of such notice.) The Publication Date shall be not less than 30
calendar days nor more than 60 calendar days prior to the payment of any such
distribution or any such offering or issuance of rights with respect to the
Capital Securities. After establishing the amount of payment to be made on the
Capital Securities, the Issuer or the Transfer Agent and Registrar will notify
DTC's Dividend Department of such payment five business days prior to payment
date. Notices to DTC's Dividend Department by telecopy shall be sent to (212)
709-1723. Such notices by mail or by any other means shall be sent to:
Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695
The Issuer or the Transfer Agent and Registrar shall confirm DTC's receipt
of such telecopy by telephoning the Dividend Department at (212) 709-1270.
5. In the event of a redemption by the Issuer of the Capital Securities,
notice specifying the terms of the redemption and the Publication Date of such
notice shall be sent by the Issuer or the Transfer Agent and Registrar to DTC
not less than 30 calendar days prior to such event by a secure means in the
manner set forth in paragraph 4. Such redemption notice shall be sent to DTC's
Call Notification Department at (516) 227-4164 or (516) 227- 4190, and receipt
of such notice shall be confirmed by telephoning (516) 227-4070. Notice by mail
or by any other means shall be sent to:
Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, New York 11530-4719
6. In the event of any invitation to tender the Capital Securities, notice
specifying the terms of the tender and the Publication Date of such notice shall
be sent by the Issuer or the Transfer Agent and Registrar to DTC by a secure
means and in a timely manner as described in paragraph 4. Notices to DTC
pursuant to this paragraph and notices of other corporate actions (including
mandatory tenders, exchanges and capital changes) shall be sent, unless
notification to another department is expressly provided for herein, by telecopy
to DTC's Reorganization Department at (212) 709-1093 or (212) 709-1094 and
receipt of such notice shall be confirmed by telephoning (212) 709-6884, or by
mail or any other means to:
Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695
7. All notices and payment advices sent to DTC shall contain the CUSIP
number or numbers of the Capital Securities and the accompanying designation of
the Capital Securities, which, as of the date of this letter, is USF&G Capital I
8 1/2% Capital Securities, Series A.
8. Distribution payments or other cash payments with respect to the Capital
Securities evidenced by the Global Certificate shall be received by Cede & Co.,
as nominee of DTC, or its registered assigns in same day funds no later than
2:30 p.m. (Eastern Time) on each payment date. Such funds shall be made payable
to the order of Cede & Co., and shall be wired in accordance with the
instructions in the attached Principal and Income Payments Rider.
9. DTC may direct the Issuer and the Transfer Agent and Registrar to use
any other telecopy number or address of DTC as the number or address to which
notices or payments may be sent.
10. In the event of a conversion, redemption, or any other similar
transaction (e.g., tender made and accepted in response to the Issuer's or the
Transfer Agent and Registrar's invitation) necessitating a reduction in the
aggregate number of Capital Securities outstanding evidenced by Global
Certificates, DTC, in its discretion: (a) may request the Issuer or the Transfer
Agent and Registrar to issue and countersign a new Global Certificate; or (b)
may make an appropriate notation on the Global Certificate indicating the date
and amount of such reduction.
11. DTC may discontinue its services as a securities depositary with
respect to the Capital Securities at any time by giving reasonable notice to the
Issuer and the Transfer Agent and Registrar (at which time DTC will confirm with
the Issuer or the Transfer Agent and Registrar the aggregate number of Capital
Securities deposited with it) and discharging its responsibilities with respect
thereto under applicable law. Under such circumstances, the Issuer may determine
to make alternative arrangements for book-entry settlement for the Capital
Securities, make available one or more separate global certificates evidencing
Capital Securities to any Participant having Capital Securities credited to its
DTC account, or issue definitive Capital Securities to the beneficial holders
thereof, and in any such case, DTC agrees to cooperate fully with the Issuer and
the Transfer Agent and Registrar, and to return the Global Certificate, duly
endorsed for transfer as directed by the Issuer or the Transfer Agent and
Registrar, together with any other documents of transfer reasonably requested by
the Issuer or the Transfer Agent and Registrar.
12. In the event that the Issuer Determines that beneficial owners of
Capital Securities shall be able to obtain definitive Capital Securities, the
Issuer or the Transfer Agent and Registrar shall notify DTC of the availability
of certificates. In such event, the Issuer or the Transfer Agent and Registrar
shall issue, transfer and exchange certificates in appropriate amounts, as
required by DTC and others, and DTC agrees to cooperate fully with the Issuer
and the Transfer Agent and Registrar and to return the Global Certificate, duly
endorsed for transfer as directed by the Issuer or the Transfer Agent and
Registrar, together with any other documents of transfer reasonably requested by
the Issuer or the Transfer Agent and Registrar.
13. This letter may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
Nothing herein shall be deemed to require the Transfer Agent and Registrar
to advance funds on behalf of the Issuer.
Very truly yours,
USF&G CAPITAL I, as Issuer
By:
Name:
Title: Administrator
(as Transfer Agent and Registrar)
THE BANK OF NEW YORK,
as Trustee
By:
Name:
Title:
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By:
Authorized Officer
PRINCIPAL AND INCOME PAYMENTS RIDER
1. This Rider supersedes any contradictory language set forth in the Letter of
Representations to which it is appended.
2. With respect to payments in the Securities:
A. Issuer or Agent shall provide notice to a standard interest and dividend
announcement service subscribed to by DTC. In the event that no such
service exists, Issuer or Agent shall provide such notice directly to
DTC electronically, as previously arranged by Issuer or Agent and DTC.
If electronic transmission has not been arranged, absent any other
arrangements between Issuer or Agent and DTC, such notice shall be sent
by telecopy to DTC's Dividend Department at (212) 709-1723 or (212)
709-1686, and receipt of such notices shall be confirmed by telephoning
(212) 709-1270. Notices to DTC pursuant to the above by mail or any
other means shall be sent to:
Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 22nd Floor
New York, NY 10004-2696
B. Issuer or Agent shall provide DTC, no later than noon (Eastern Time) on
each periodic interest, principal or dividend payment date, a written
notice of payment information containing the Security CUSIP numbers for
which payment will be sent, as well as the dollar amount of payment.
C. Dividends, interest payments and principal payments that are part of
periodic principal and interest payments shall be received by Cede &
Co., as nominee of DTC, or its registered assigns, in same-day funds no
later than 2:30 p.m. (Eastern Time) on each payment date. Absent any
other arrangements between Issuer or Agent and DTC, such funds shall be
wired as follows:
The Chase Manhattan Bank
ABA #021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Dividend Deposit Account #088-026778
D. Maturity and redemption payments with CUSIP-level detail shall be
received by Cede & Co., as nominee of DTC, or its registered assigns, in
same-day funds by 2:30 p.m. (Eastern Time) on the payable date. Absent
any other arrangements between Issuer or Agent and DTC, such funds shall
be wired as follows:
The Chase Manhattan Bank
ABA #021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Dividend Deposit Account #066-027306
E. Principal payments (plus accrued interest, if any) as the result of
optional tenders for purchase affected by means of DTC's Repayment
Option Procedures shall be received by Cede & Co., as nominee of DTC, or
its registered assigns, in same-day funds by 2:30 p.m. (Eastern Time) on
the first payable date. Absent any other arrangements between Issuer or
Agent and DTC, such funds shall be wired as follows:
The Chase Manhattan Bank
ABA #021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Dividend Deposit Account #066-027608
REPRESENTATIONS FOR PRO RATA REDUCTION OF PRINCIPAL
To be included in Letter of Representations
In the event of a pro rata reduction of principal, Trustee/Agent shall send
DTC written notice with respect to the dollar amount per $1,000 original face
value (or other minimum authorized denomination if less that $1,000 face value)
payable on each payment date allocated as to the interest and principal portions
thereof preferably five, but not less than two, business days prior to each
payment date. Such notices, which shall clearly indicate that they relate to a
pro rata reduction of principal and which shall also contain the current pool
factor or ratio and Trustee/Agent contact's name and telephone number, shall be
sent by telecopy to DTC's Dividend Department at (212) 789-1723, or if by mail
by any other means to:
Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
Excluded from the applicability of any pro rata reduction shall be any reduction
that would cause a holder to hold fewer that 100 Capital Securities.
REPRESENTATIONS FOR RULE 144A SECURITIES
to be included in DTC Letter of Representations
1. Issuer represents that at the time of initial registration in the name
of DTC's nominee, Cede & Co., the Securities were Legally or Contractually
Restricted Securities1 eligible for transfer under Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act"), and identified by a
CUSIP or CINS identification number that was different from any CUSIP or CINS
number assigned to any securities of the same class that were not Legally or
Contractually Restricted Securities. Issuer shall ensure that a CUSIP or CINS
identification number is obtained for all unrestricted securities of the same
class that is different from any CUSIP or CINS identification number assigned to
a Legally or Contractually Restricted Security of such class, and shall notify
DTC promptly in the event that it is unable to do so. Issuer represents that it
has agreed to comply with all applicable information requirements of Rule 144A.
2. Issuer represents that the Securities are an issue of nonconvertible
debt securities or nonconvertible preferred stock which is rated in one of the
top four categories by a nationally recognized statistical rating organization
("Investment - Grade Securities")
3. If the Securities are not Investment Grade Securities, Issuer and Agent
acknowledge that if such Securities cease to be included in an SRO Rule 144A
System during any period in which such Securities are Legally or Contractually
Restricted Securities, such Securities shall not longer be eligible for DTC's
services. Furthermore, DTC may discontinue providing its services as securities
depository with respect to the Securities at any time by giving reasonable
notice to Issuer or Agent. Under any of the aforementioned circumstances, at
DTC's request, Issuer and Agent shall cooperate fully with DTC by taking
appropriate action to make available one or more separate certificates
evidencing Securities to any Participant having Securities credited to its DTC
accounts.
4. Issuer and Agent acknowledge that so long as Cede & Co. is a record
owner of the Securities, Cede & Co., shall be entitled to all applicable voting
rights and to receive the full amount of all distributions payable with respect
thereto. Issuer and Agent acknowledge that DTC shall treat ant DTC Participant
("Participant") having Securities credited to its DTC accounts as entitled to
the full benefits of ownership of such Securities. Without limiting the
generality of the preceding sentence, Issuer and Agent acknowledge that DTC
shall treat any Participant having Securities credited to its DTC accounts as
entitled to receive distributions (and voting rights, if any) in respect of
Securities, and to receive from DTC certificates evidencing Securities. Issuer
and Agent recognize that DTC does not in any way undertake to, and shall not
have any responsibility to, monitor or ascertain the compliance of any
transactions in the Securities with any of the provisions: (a) of Rule 144A; (b)
of other exemptions from registration under the Securities Act or of any state
or federal securities laws; or (c) of the offering documents.
EXHIBIT C
THIS CERTIFICATE IS NOT TRANSFERABLE
Certificate Number
Number of Common Securities
C-1 __________
Certificate Evidencing Common Securities
of
USF&G Capital I
8 1/2% Common Securities
(liquidation amount $1,000 per Common Security)
USF&G Capital I, a statutory business trust formed under the Business Trust
Act of the State of Delaware (the "Trust"), hereby certifies that _____________
(the "Holder") is the registered owner of ___________________ (__________)
common securities of the Trust representing beneficial interests of the Trust
and designated the 8 1/2% Common Securities (liquidation amount $1,000 per
common security) (the "Common Securities"). In accordance with Section 5.10 of
the Trust Agreement (as defined below) the Common Securities are not
transferable and any attempted transfer hereof shall be void. The designations,
rights, privileges, restrictions, preferences and other terms and provisions of
the Common Securities are set forth in, and this certificate and the Common
Securities represented hereby are issued and shall in all respects be subject to
the terms and provisions of, the Amended and Restated Trust Agreement of the
Trust, dated as of December 24, 1996, as the same may be amended from time to
time (the "Trust Agreement"), including the designation of the terms of the
Common Securities as set forth therein. The Trust will furnish a copy of the
Trust Agreement to the Holder without charge upon written request to the Trust
at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
In Witness Whereof, one of the Administrators of the Trust has executed
this certificate this _____ day of December, 1996.
USF&G Capital I
By:___________________________
Name: J. Kendall Huber
Title: Administrator
EXHIBIT D
AGREEMENT AS TO EXPENSES AND LIABILITIES
Agreement dated as of December 24, 1996, between USF&G Corporation, a
Maryland corporation ("USF&G Corporation"), and USF&G Capital I, a Statutory
business trust formed under the Business Trust Act of the State of Delaware (the
"Trust").
Whereas, the Trust intends to issue its Common Securities (the "Common
Securities") to and receive Debentures from USF&G Corporation and to issue and
sell 8 1/2% Capital Securities, Series A (the "Capital Securities") with such
powers, preferences and special rights and restrictions as are set forth in the
Amended and Restated Trust Agreement of the Trust, dated as of December 24,
1996, as the same may be amended from time to time (the "Trust Agreement");
Whereas, USF&G Corporation will directly or indirectly own all of the
Common Securities of the Trust and will issue the Debentures;
Now, Therefore, in consideration of the purchase by each holder of the
Capital Securities, which purchase USF&G Corporation hereby agrees shall benefit
USF&G Corporation and which purchase USF&G Corporation acknowledges will be made
in reliance upon the execution and delivery of this Agreement, USF&G Corporation
and the Trust hereby agree as follows:
ARTICLE I
Section 1.1. Guarantee by USF&G Corporation.
Subject to the terms and conditions hereof, USF&G Corporation hereby
irrevocably and unconditionally guarantees to each person or entity to whom the
Trust is now or hereafter becomes indebted or liable (the "Beneficiaries") the
full payment, when and as due, of any and all Obligations (as hereinafter
defined) to such Beneficiaries. As used herein, "Obligations" means any costs,
expenses or liabilities of the Trust (including, without limitation, any tax
liability of the Trust), other than obligations of the Trust to pay to holders
of any Capital Securities or other similar interests in the Trust the amounts
due such holders pursuant to the terms of the Capital Securities or such other
similar interests, as the case may be. This Agreement is intended to be for the
benefit of, and to be enforceable by, all such Beneficiaries, whether or not
such Beneficiaries have received notice hereof.
Section 1.2. Term of Agreement.
This Agreement shall terminate and be of no further force and effect upon
the later of (a) the date on which full payment has been made of all amounts
payable to all holders of all the Capital Securities (whether upon redemption,
liquidation, exchange or otherwise) and (b) the date on which there are no
Beneficiaries remaining; provided, however, that this Agreement shall continue
to be effective or shall be reinstated, as the case may be, if at any time any
holder of Capital Securities or any Beneficiary must restore payment of any sums
paid under the Capital Securities, under any Obligation, under the Guarantee
Agreement dated the date hereof by USF&G Corporation and The Bank of New York,
as guarantee trustee or under this Agreement for any reason whatsoever. This
Agreement is continuing, irrevocable, unconditional and absolute.
Section 1.3. Waiver of Notice.
USF&G Corporation hereby waives notice of acceptance of this Agreement and
of any Obligation to which it applies or may apply, and USF&G Corporation hereby
waives presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
Section 1.4. No Impairment.
The obligations, covenants, agreements and duties of USF&G Corporation
under this Agreement shall in no way be affected or impaired by reason of the
happening from time to time of any of the following:
(a) the extension of time for the payment by the Trust of all or any
portion of the Obligations or for the performance of any other obligation under,
arising out of, or in connection with, the obligations;
(b) any failure, omission, delay or lack of diligence on the part of the
Beneficiaries to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Beneficiaries with respect to the Obligations or any
action on the part of the Trust granting indulgence or extension of any kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust.
There shall be no obligation of the Beneficiaries to give notice to, or obtain
the consent of, USF&G Corporation with respect to the happening of any of the
foregoing.
Section 1.5. Enforcement.
A Beneficiary may enforce this Agreement directly against USF&G
Corporation and USF&G Corporation waives any right or remedy to require that any
action be brought against the Trust or any other person or entity before
proceeding against USF&G Corporation.
Section 1.6. Subrogation.
USF&G Corporation shall be subrogated to all (if any) rights of the Trust
in respect of any amounts paid to the Beneficiaries by USF&G Corporation under
this Agreement; provided, however, that USF&G Corporation shall not (except to
the extent required by mandatory provisions of law) be entitled to enforce or
exercise any rights which it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of payment under this
Agreement, if, at the time of any such payment, any amounts are due and unpaid
under this Agreement.
ARTICLE II
Section 2.1. Binding Effect.
All guarantees and agreements contained in this Agreement shall bind the
successors, assigns, receivers, trustees and representatives of USF&G
Corporation and shall inure to the benefit of the Beneficiaries.
Section 2.2. Amendment.
So long as there remains any Beneficiary or any Capital Securities of any
series are outstanding, this Agreement shall not be modified or amended in any
manner adverse to such Beneficiary or to the holders of the Capital Securities.
Section 2.3. Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be given in writing by delivering the same against receipt
therefor by facsimile transmission (confirmed by mail), telex or by registered
or certified mail, addressed as follows (and if so given, shall be deemed given
when mailed or upon receipt of an answer-back, if sent by telex):
USF&G Capital I
c/o USF&G Corporation
100 Light Street
Baltimore, Maryland 21202
Attention: Treasurer
USF&G Corporation
100 Light Street
Baltimore, Maryland 21202
Facsimile No.: (410) 547-3000
Attention: Treasurer
Section 2.4. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE.
This Agreement is executed as of the day and year first above written.
USF&G CORPORATION
By: /s/ Dan L. Hale
Name: Dan L. Hale
Title: Executive Vice President,
Chief Financial Officer
USF&G Capital I
By: /s/ J. Kendall Huber
Name: J. Kendall Huber
Title: Administrator
EXHIBIT E-1
CAPITAL SECURITIES CERTIFICATE (BOOK-ENTRY)
[FACE OF CERTIFICATE]
THIS SECURITY IS A GLOBAL CAPITAL SECURITY CERTIFICATE WITHIN THE MEANING
OF THE TRUST AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF
THE DEPOSITORY TRUST COMPANY (THE "DEPOSITORY") OR A NOMINEE OF THE DEPOSITORY.
THE CAPITAL SECURITIES REPRESENTED HEREBY ARE EXCHANGEABLE IN WHOLE OR IN PART
FOR CAPITAL SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
TRUST AGREEMENT AND NO TRANSFER OF THE CAPITAL SECURITIES REPRESENTED HEREBY
(OTHER THAN A TRANSFER OF SUCH CAPITAL SECURITIES AS A WHOLE BY THE DEPOSITORY
TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE
DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN
SUCH LIMITED CIRCUMSTANCES.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUST OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE CAPITAL SECURITIES EVIDENCED HEREBY AND ANY JUNIOR SUBORDINATED
DEBENTURES ISSUABLE IN CONNECTION THEREWITH HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE
INITIAL PURCHASERS (I) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN
OFFSHORE TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (B) BY SUBSEQUENT INVESTORS AS SET FORTH IN (A) ABOVE AND, IN
ADDITION, TO AN INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN REGULATION D
UNDER THE SECURITIES ACT) IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS OF THE UNITED
STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION
PROVIDED BY RULE 144 FOR RESALES OF THE CAPITAL SECURITIES OR THE JUNIOR
SUBORDINATED DEBENTURES.
THE CAPITAL SECURITIES EVIDENCED HEREBY MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED TO ANY PERSON UNLESS SUCH PERSON (A) IS NOT ITSELF, AND IS
NOT ACQUIRING CAPITAL SECURITIES WITH "PLAN ASSETS" OF, AN EMPLOYEE BENEFIT OR
OTHER PLAN SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE") (EACH, A "PLAN"), OR ANY ENTITY WHOSE UNDERLYING
ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY (A
"PLAN ASSET ENTITY") OR (B)(1) IS ITSELF, OR IS ACQUIRING CAPITAL SECURITIES
WITH THE ASSETS OF, AN "INVESTMENT FUND" (WITHIN THE MEANING OF PART V(B) OF
PTCE 84-14) MANAGED BY A "QUALIFIED PROFESSIONAL ASSET MANAGER" (WITHIN THE
MEANING OF PART V(A) OF PTCE 84-14 WHICH HAS MADE OR PROPERLY AUTHORIZED THE
DECISION FOR SUCH PLAN TO PURCHASE CAPITAL SECURITIES, UNDER CIRCUMSTANCES SUCH
THAT PTCE 84-14 IS APPLICABLE TO THE PURCHASE AND HOLDING OF SUCH CAPITAL
SECURITIES, (2) IS ITSELF, OR IS ACQUIRING CAPITAL SECURITIES WITH THE ASSETS
OF, A PLAN MANAGED BY AN "IN-HOUSE ASSET MANAGER" (WITHIN THE MEANING OF PART
IV(A) OF PTCE 96-23) WHICH HAS MADE OR PROPERLY AUTHORIZED THE DECISION FOR SUCH
PLAN TO PURCHASE CAPITAL SECURITIES, UNDER CIRCUMSTANCES SUCH THAT PTCE 96-23 IS
APPLICABLE TO THE PURCHASE AND HOLDING OF SUCH CAPITAL SECURITIES, (3) IS AN
INSURANCE COMPANY POOLED SEPARATE ACCOUNT PURCHASING CAPITAL SECURITIES PURSUANT
TO SECTION I OF PTCE 90-1 OR A BANK COLLECTIVE INVESTMENT FUND PURCHASING
CAPITAL SECURITIES PURSUANT TO SECTION I OF PTCE 91-38, AND IN EITHER CASE, NO
PLAN OWNS MORE THAN 10% OF THE ASSETS OF SUCH ACCOUNT OR COLLECTIVE FUND (WHEN
AGGREGATED WITH OTHER PLANS OF THE SAME EMPLOYER (OR ITS AFFILIATES) OR EMPLOYEE
ORGANIZATION) OR (4) IS AN INSURANCE COMPANY USING THE ASSETS OF ITS GENERAL
ACCOUNT TO PURCHASE THE CAPITAL SECURITIES PURSUANT TO SECTION I OF PTCE 95-60,
IN WHICH CASE THE RESERVES AND LIABILITIES FOR THE GENERAL ACCOUNT CONTRACTS
HELD BY OR ON BEHALF OF ANY PLAN, TOGETHER WITH ANY OTHER PLANS MAINTAINED BY
THE SAME EMPLOYER (OR ITS AFFILIATES) OR EMPLOYEE ORGANIZATION, DO NOT EXCEED
10% OF THE TOTAL RESERVES AND LIABILITIES OF THE INSURANCE COMPANY GENERAL
ACCOUNT (EXCLUSIVE OF SEPARATE ACCOUNT LIABILITIES), PLUS SURPLUS AS SET FORTH
IN THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS ANNUAL STATEMENT FILED
WITH THE STATE OF DOMICILE OF THE INSURER.
THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING
RESTRICTIONS.
THE CAPITAL SECURITIES EVIDENCED HEREBY MAY BE ISSUED AND TRANSFERRED ONLY
IN BLOCKS OF NOT LESS THAN 100 CAPITAL SECURITIES. ANY TRANSFER, SALE OR OTHER
DISPOSITION OF CAPITAL SECURITIES IN A BLOCK OF LESS THAN 100 CAPITAL SECURITIES
SHALL BE DEEMED VOID AND OF NO LEGAL EFFECT WHATSOEVER, ANY SUCH TRANSFEREE
SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH CAPITAL SECURITIES FOR ANY PURPOSE,
INCLUDING BUT NOT LIMITED TO THE RECEIPT OF DISTRIBUTIONS ON SUCH CAPITAL
SECURITIES, AND SUCH TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER
IN SUCH CAPITAL SECURITIES.
Certificate Number Number of Capital Securities
PG-
CUSIP NO.
Certificate Evidencing Capital Securities of
USF&G Capital I
8 1/2% Capital Securities, Series A
(liquidation amount $1,000 per Capital Security)
USF&G Capital I, a business trust created under the laws of the State of
Delaware (the "Trust"), hereby certifies that CEDE & CO. (the "Holder") is the
registered owner of one hundred thousand (100,000) capital securities of the
Trust representing an undivided beneficial interest in the assets of the Trust
and designated the USF&G Capital I 8 1/2% Capital Securities, Series A
(liquidation amount $1,000 per Capital Security) (the "Capital Securities"), or
such other amount (which, when taken together with all other outstanding Capital
Securities, shall not exceed 100,000 Capital Securities in the aggregate at any
time) as may be set forth in the records of the Securities Registrar. The
Capital Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer as provided in Section 5.4 of the Trust
Agreement (as defined below). The designations, rights, privileges,
restrictions, preferences and other terms and provisions of the Capital
Securities are set forth in, and this certificate and the Capital Securities
represented hereby are issued and shall in all respects be subject to the terms
and provisions of, the Amended and Restated Trust Agreement of the Trust dated
as of December 24, 1996, as the same may be amended from time to time (the
"Trust Agreement") including the designation of the terms of Capital Securities
as set forth therein. The Holder is entitled to the benefits of the Guarantee
Agreement entered into by USF&G Corporation, a Maryland corporation, and The
Bank of New York, as guarantee trustee, dated as of December 24, 1996 (the
"Guarantee"), to the extent provided therein. The Trust will furnish a copy of
the Trust Agreement and the Guarantee to the Holder without charge upon written
request to the Trust at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder,
This Certificate is not valid unless authenticated by the Property Trustee.
WITNESS the facsimile signature of a duly authorized Administrator of the
Trust.
Dated: December 24, 1996 USF&G CAPITAL I
By: _
Name:
Administrator
Authenticated: THE BANK OF NEW YORK
By:
Property Trustee
EXHIBIT E-2
CAPITAL SECURITIES CERTIFICATE
THE CAPITAL SECURITIES EVIDENCED HEREBY AND ANY JUNIOR SUBORDINATED
DEBENTURES ISSUABLE IN CONNECTION THEREWITH HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE
INITIAL PURCHASERS (I) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN
OFFSHORE TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (B) BY SUBSEQUENT INVESTORS AS SET FORTH IN (A) ABOVE AND, IN
ADDITION, TO AN INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN REGULATION D
UNDER THE SECURITIES ACT) IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS OF THE UNITED
STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION
PROVIDED BY RULE 144 FOR RESALES OF THE CAPITAL SECURITIES OR THE JUNIOR
SUBORDINATED DEBENTURES.
THE CAPITAL SECURITIES EVIDENCED HEREBY MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED TO ANY PERSON UNLESS SUCH PERSON (A) IS NOT ITSELF, AND IS
NOT ACQUIRING CAPITAL SECURITIES WITH "PLAN ASSETS" OF, AN EMPLOYEE BENEFIT OR
OTHER PLAN SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE") (EACH, A "PLAN"), OR ANY ENTITY WHOSE UNDERLYING
ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY (A
"PLAN ASSET ENTITY") OR (B)(1) IS ITSELF, OR IS ACQUIRING CAPITAL SECURITIES
WITH THE ASSETS OF, AN "INVESTMENT FUND" (WITHIN THE MEANING OF PART V(B) OF
PTCE 84-14) MANAGED BY A "QUALIFIED PROFESSIONAL ASSET MANAGER" (WITHIN THE
MEANING OF PART V(A) OF PTCE 84-14 WHICH HAS MADE OR PROPERLY AUTHORIZED THE
DECISION FOR SUCH PLAN TO PURCHASE CAPITAL SECURITIES, UNDER CIRCUMSTANCES SUCH
THAT PTCE 84-14 IS APPLICABLE TO THE PURCHASE AND HOLDING OF SUCH CAPITAL
SECURITIES, (2) IS ITSELF, OR IS ACQUIRING CAPITAL SECURITIES WITH THE ASSETS
OF, A PLAN MANAGED BY AN "IN-HOUSE ASSET MANAGER" (WITHIN THE MEANING OF PART
IV(A) OF PTCE 96-23) WHICH HAS MADE OR PROPERLY AUTHORIZED THE DECISION FOR SUCH
PLAN TO PURCHASE CAPITAL SECURITIES, UNDER CIRCUMSTANCES SUCH THAT PTCE 96-23 IS
APPLICABLE TO THE PURCHASE AND HOLDING OF SUCH CAPITAL SECURITIES, (3) IS AN
INSURANCE COMPANY POOLED SEPARATE ACCOUNT PURCHASING CAPITAL SECURITIES PURSUANT
TO SECTION I OF PTCE 90-1 OR A BANK COLLECTIVE INVESTMENT FUND PURCHASING
CAPITAL SECURITIES PURSUANT TO SECTION I OF PTCE 91-38, AND IN EITHER CASE, NO
PLAN OWNS MORE THAN 10% OF THE ASSETS OF SUCH ACCOUNT OR COLLECTIVE FUND (WHEN
AGGREGATED WITH OTHER PLANS OF THE SAME EMPLOYER (OR ITS AFFILIATES) OR EMPLOYEE
ORGANIZATION) OR (4) IS AN INSURANCE COMPANY USING THE ASSETS OF ITS GENERAL
ACCOUNT TO PURCHASE THE CAPITAL SECURITIES PURSUANT TO SECTION I OF PTCE 95-60,
IN WHICH CASE THE RESERVES AND LIABILITIES FOR THE GENERAL ACCOUNT CONTRACTS
HELD BY OR ON BEHALF OF ANY PLAN, TOGETHER WITH ANY OTHER PLANS MAINTAINED BY
THE SAME EMPLOYER (OR ITS AFFILIATES) OR EMPLOYEE ORGANIZATION, DO NOT EXCEED
10% OF THE TOTAL RESERVES AND LIABILITIES OF THE INSURANCE COMPANY GENERAL
ACCOUNT (EXCLUSIVE OF SEPARATE ACCOUNT LIABILITIES), PLUS SURPLUS AS SET FORTH
IN THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS ANNUAL STATEMENT FILED
WITH THE STATE OF DOMICILE OF THE INSURER.
THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING
RESTRICTIONS.
Certificate Number Number of Capital Securities
CUSIP NO. 065912 AB 3
Certificate Evidencing Capital Securities of
USF&G Capital I
8 1/2% Capital Securities, Series A
(liquidation amount $1,000 per Capital Security)
USF&G Capital I, a business trust created under the laws of the State of
Delaware (the "Trust"), hereby certifies that _____________ (the "Holder") is
the registered owner of ( ) capital securities of the Trust representing an
undivided beneficial interest in the assets of the Trust and designated the
USF&G Capital I 8 1/2% Capital Securities, Series A (liquidation amount $1,000
per Capital Security) (the "Capital Securities"). The Capital Securities are
transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer as provided in Section 5.4 of the Trust Agreement (as
defined below). The designations, rights, privileges, restrictions, preferences
and other terms and provisions of the Capital Securities are set forth in, and
this certificate and the Capital Securities represented hereby are issued and
shall in all respects be subject to the terms and provisions of, the Amended and
Restated Trust Agreement of the Trust dated as of December 24, 1996, as the same
may be amended from time to time (the "Trust Agreement") including the
designation of the terms of Capital Securities as set forth therein. The Holder
is entitled to the benefits of the Guarantee Agreement entered into by USF&G
Corporation, a Maryland corporation, and The Bank of New York, as guarantee
trustee, dated as of December 24, 1996 (the "Guarantee"), to the extent provided
therein. The Trust will furnish a copy of the Trust Agreement and the Guarantee
to the Holder without charge upon written request to the Trust at its principal
place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
This Certificate is not valid unless authenticated by the Property Trustee.
WITNESS the facsimile signature of a duly authorized Administrator of the
Trust.
Dated: December 24, 1996 USF&G CAPITAL I
By: _______________________________
Name:
Administrator
Authenticated: THE BANK OF NEW YORK
By: ______________________
Property Trustee
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers ________________
Capital Securities represented by the within (Transfer of fewer than 100 Capital
Securities are prohibited) Certificate to:
(Insert assignee's name)
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints
agent to transfer said Capital Securities on the books of the Trust. The agent
may substitute another to act for him or her.
Date: _________________________
Signature:
(Sign exactly as your name appears on the
other side of this Capital Security
Certificate)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
EXHIBIT F -- Form of Restricted
Securities Certificate
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to ss. 5.5(b) of the Trust Agreement)
[-------------------------],
as Security Registrar
[address]
Re: 8 1/2% Capital Securities, Series A of USF&G Capital I (the
"Trust") (the "Capital Securities")
Reference is made to the Amended and Restated Trust Agreement, dated
as of December 24, 1996 (the "Trust Agreement"), among USF&G Corporation, as
Depositor, The Bank of New York, as Property Trustee, and The Bank of New York
(Delaware), as Delaware Trustee. Terms used herein and defined in the Trust
Agreement or in Regulation S, Rule 144A or Rule 144 under the U.S. Securities
Act of 1933 (the "Securities Act") are used herein as so defined.
This certificate relates to $_____________ aggregate Liquidation
Amount of Capital Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
CURRENTLY IN BOOK-ENTRY FORM: _____ Yes _____ No (check one)
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Book-Entry Capital Securities
Certificate, they are held through the Clearing Agency or a Clearing Agency
Participant in the name of the Undersigned, as or on behalf of the Owner. If the
Specified Securities are not represented by a Book-Entry Capital Securities
Certificate, they are registered in the name of the Undersigned, as or on behalf
of the Owner.
The Owner has requested that the Specified Securities be transferred
to a person (the "Transferee") who will take delivery in the form of a
Restricted Capital Security. In connection with such transfer, the Owner hereby
certifies that, unless such transfer is being effected pursuant to an effective
registration statement under the Securities Act, it is being effected in
accordance with Rule 144A, Rule 904 or Rule 144 under the Securities Act and all
applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies as:
(1) Rule 144A Transfers. If the transfer is being effected in
accordance with Rule 144A:
(A) the Specified Securities are being transferred to a
person that the Owner and any person acting on its behalf reasonably
believe is a "qualified institutional buyer" within the meaning of
Rule 144A, acquiring for its own account or for the account of a
qualified institutional buyer; and
(B) the Owner and any person acting on its behalf have
taken reasonable steps to ensure that the Transferee is aware that
the Owner may be relying on Rule 144A in connection with the
transfer; and
(2) Rule 904 Transfers. If the transfer is being effected in
accordance with Rule 904:
(A) the Owner is not a distributor of the Securities, an
affiliate of the Depositor or the Trust or any such distributor or a
person acting on behalf of any of the foregoing;
(B) the offer of the Specified Securities was not made to
a person in the United States;
(C) either;
(i) at the time the buy order was originated, the
Transferee was outside the United States or the Owner and
any person acting on its behalf reasonably believed that
the Transferee was outside the United States, or
(ii) the transaction is being executed in, on or through
the facilities of the Eurobond market, as regulated by
the Association of International Bond Dealers, or another
designated offshore securities market and neither the Owner
nor any person acting on its behalf knows that the
transaction has been prearranged with a buyer in the United
States;
(D) no directed selling efforts have been made in the
United States by or on behalf of the Owner or any affiliate thereof;
and
(3) Rule 144 Transfers. If the transfer is being effected pursuant to
Rule 144:
(A) the transfer is occurring after a holding period of at
least two years (computed in accordance with paragraph (d) of Rule
144) has elapsed since the date the Specified Securities were
acquired from the Depositor or the Trust or from an affiliate (as
such term is defined in Rule 144) of the Depositor or the Trust,
whichever is later, and is being effected in accordance with the
applicable amount, manner of sale and notice requirements of
paragraphs (e), (f) and (h) of Rule 144; or
(B) the transfer is occurring after a holding period of at
least three years has elapsed since the date the Specified Securities
were acquired from the Depositor or the Trust or from an affiliate
(as such term is defined in Rule 144) of the Depositor or the Trust,
whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the Depositor or the
Trust.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Depositor, the Trust and the Initial
Purchasers.
Dated:
(Print the name of the Undersigned, as
such term is defined in the second
paragraph of this certificate.)
By:
Name:
Title:
(If the Undersigned is a corporation,
partnership or fiduciary, the title
of the person signing on behalf of the
Undersigned must be stated.)
EXHIBIT G -- Form of Unrestricted
Securities Certificate
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Restricted Capital Securities Legends pursuant to
ss. 5.5(c) of the Trust Agreement)
[-------------------------],
as Security Registrar
[address]
Re: 8 1/2% Capital Securities, Series A of USF&G
Capital I (the "Trust") (the "Capital Securities")
Reference is made to the Amended and Restated Trust Agreement, dated
as of December 24, 1996 (the "Trust Agreement"), among USF&G Corporation, as
Depositor, The Bank of New York, as Property Trustee, and The Bank of New York
(Delaware), as Delaware Trustee. Terms used herein and defined in the Trust
Agreement or in Rule 144 under the U.S. Securities Act of 1933 (the "Securities
Act") are used herein as so defined.
This certificate relates to $_____________ aggregate Liquidation
Amount of Capital Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
CURRENTLY IN BOOK-ENTRY FORM: _____ Yes _____ No (check one)
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Book-Entry Capital Securities
Certificate, they are held through the Clearing Agency or a Clearing Agency
Participant in the name of the Undersigned, as or on behalf of the Owner. If the
Specified Securities are not represented by a Book-Entry Capital Securities
Certificate, they are registered in the name of the Undersigned, as or on behalf
of the Owner.
The Owner has requested that the Specified Securities be exchanged
for Capital Securities bearing no Restricted Capital Securities Legend pursuant
to Section 5.5(c) of the Trust Agreement. In connection with such exchange, the
Owner hereby certifies that a period of at least three years has elapsed since
the date the Specified Securities were acquired from the Depositor or the Trust
or from an affiliate of the Depositor or the Trust and the Owner is not, and
during the preceding three months has not been, an affiliate of the Depositor or
the Trust. The Owner also acknowledges that any future transfers of the
Specified Securities must comply with all applicable securities laws of the
states of the United States and other jurisdictions.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Depositor, the Trust and the Initial
Purchasers.
Dated:
(Print the name of the Undersigned, as
such term is defined in the second
paragraph of this certificate.)
By:
Name:
Title:
(If the Undersigned is a corporation,
partnership or fiduciary, the title
of the person signing on behalf of the
Undersigned must be stated.)
- - -------------------------------
1A "Legally Restricted Security" is a security that is a restricted security, as
defined in Rule 144(a)(3). A "Contractually Restricted Security" is a security
that upon issuance and continually thereafter can only be sold pursuant to
Regulation S under the Securities Act, Rule 144A, Rule 144, or in a transaction
exempt from the registration requirements of the Securities Act pursuant to
Section 4 of the Securities Act and not involving any public offering; provided,
however, that once the security is sold pursuant to the provisions of Rule 144,
including Rule 144 (k), it will thereby cease to be a "Contractually Restricted
Security." For purposes of this definition, in order for a depositary receipt to
be considered a "Legally or Contractually Restricted Security," the underlying
security must also be a "Legally or Contractually Restricted Security."
<PAGE>
USF&G CORPORATION
to
THE BANK OF NEW YORK
Trustee
-
JUNIOR SUBORDINATED INDENTURE
Dated as of December 24, 1996
-
JUNIOR SUBORDINATED INDENTURE, dated as of December 24, 1996, between
USF&G Corporation, a Maryland corporation (hereinafter called the "Company")
having its principal office at 100 Light Street, Baltimore, Maryland 21202, and
THE BANK OF NEW YORK, a New York banking corporation, as Trustee (hereinafter
called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured junior
subordinated debt securities in series (hereinafter called the "Securities") of
substantially the tenor hereinafter provided, including, without limitation,
Securities issued to evidence loans made to the Company of the proceeds from the
issuance from time to time by one or more business trusts (each a "USF&G Trust,"
and, collectively, the "USF&G Trusts") of preferred trust interests in such
Trusts (the "Capital Securities") and common interests in such Trusts (the
"Common Securities" and, collectively with the Capital Securities, the "Trust
Securities"), and to provide the terms and conditions upon which the Securities
are to be authenticated, issued and delivered.
All things necessary to make the Securities, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid agreement
of the Company, in accordance with their and its terms, have been done.
NOW THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the
premises and the purchase of the Securities by the Holders thereof, it is
mutually covenanted and agreed, for the equal and proportionate benefit of all
Holders of the Securities or of any series thereof, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) The terms defined in this Article have the meanings assigned to them in
this Article, and include the plural as well as the singular;
(2) All other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(3) All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles,
and the term "generally accepted accounting principles" with respect to any
computation required or permitted hereunder shall mean such accounting
principles which are generally accepted at the date or time of such computation;
provided, that when two or more principles are so generally accepted, it shall
mean that set of principles consistent with those in use by the Company; and
(4) The words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
"Act" when used with respect to any Holder has the meaning specified in
Section 1.4.
"Additional Interest" means the interest, if any, that shall accrue on any
interest on the Securities of any series the payment of which has not been made
on the applicable Interest Payment Date and which shall accrue at the rate per
annum specified or determined as specified in such Security.
"Additional Sums" has the meaning specified in Section 10.6.
"Additional Taxes" means the sum of any additional taxes, duties and other
governmental charges to which a USF&G Trust has become subject from time to time
as a result of a Tax Event.
"Administrator" means, in respect of any USF&G Trust, each Person
identified as an "Administrator" in the related Trust Agreement, solely in such
Person's capacity as Administrator of such USF&G Trust under such Trust
Agreement and not in such Person's individual capacity, or any successor
administrator appointed as therein provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person; provided, however, no USF&G Trust to which
Securities have been issued shall be deemed to be an Affiliate of the Company.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agent Member" means any member of, or participant in, the Depository.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Security or beneficial interest therein, the rules and
procedures of the Depository for such Security, in each case to the extent
applicable to such transaction and as in effect from time to time.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 6.14 to act on behalf of the Trustee to authenticate Securities of
one or more series.
"USF&G Guarantee" means the guarantee by the Company of distributions on
the Capital Securities of a USF&G Trust to the extent provided in the Guarantee
Agreement.
"USF&G Trust" has the meaning specified in the first recital of this
Indenture.
"Board of Directors" means either the board of directors of the Company or
any executive committee or other committee of that board duly authorized to act
hereunder.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors, or officers of the Company to which authority to act on behalf of
the Board of Directors has been delegated, and to be in full force and effect on
the date of such certification, and delivered to the Trustee.
"Business Day" means any day other than (i) a Saturday or Sunday, (ii) a
day on which banking institutions in the City of New York are authorized or
required by law or executive order to remain closed or (iii) a day on which the
Corporate Trust Office of the Trustee, or, with respect to the Securities of a
series initially issued to a USF&G Trust, the principal office of the Property
Trustee under the related Trust Agreement, is closed for business.
"Capital Securities" has the meaning specified in the first recital of this
Indenture.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties on such date.
"Common Securities" has the meaning specified in the first recital of this
Indenture.
"Common Stock" means the common stock, par value $2.50 per share, of the
Company.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor corporation.
"Company Request" and "Company Order" mean, respectively, the written
request or order signed in the name of the Company by the Chairman of the Board
of Directors, the Chairman of the Executive Committee of the Board of Directors,
a Vice Chairman of the Board of Directors, the Chief Executive Officer, the
President, the Chief Operating Officer, a Vice Chairman or a Vice President, and
by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of the Company, and delivered to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee at which
at any particular time its corporate trust business shall be administered, which
office as of the date of this Indenture is located at 101 Barclay Street, Floor
21W, New York, New York 10286.
"Corporation" includes a corporation, association, company, joint-stock
company or business trust.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Depository" means, with respect to the Securities of any series issuable
or issued in whole or in part in the form of one or more Global Securities, the
Person designated as Depository by the Company pursuant to Section 3.1 with
respect to such series (or any successor thereto).
"Discount Security" means any security which provides for an amount less
than the principal amount thereof to be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 5.2.
"Distributions," with respect to the Trust Securities issued by a USF&G
Trust, means amounts payable in respect of such Trust Securities as provided in
the related Trust Agreement and referred to therein as "Distributions."
"Dollar" means the currency of the United States of America that, as at the
time of payment, is legal tender for the payment of public and private debts.
"DTC" means The Depository Trust Company.
"Event of Default" unless otherwise specified in the supplemental indenture
creating a series of Securities has the meaning specified in Article V.
"Exchange Act" means the Securities Exchange Act of 1934 and any statute
successor thereto, in each case as amended from time to time.
"Extension Period" has the meaning specified in Section 3.11.
"Global Security" means a Security in the form prescribed in Section 2.4
evidencing all or part of a series of Securities, issued to the Depository or
its nominee for such series, and registered in the name of such Depository or
its nominee.
"Guarantee Agreement" means the Guarantee Agreement substantially in the
form attached hereto as Annex C, or substantially in such form as may be
specified as contemplated by Section 3.1 with respect to the Securities of any
series, in each case as amended from time to time.
"Hedging Obligations" means, with respect to any Person, all obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) foreign exchange contracts,
currency swap agreements or similar agreements, and (iii) other agreements or
arrangements designed to protect such Person against fluctuations, or otherwise
to establish financial hedges in respect of, exchange rates, currency rates or
interest rates.
"Holder" means a Person in whose name a Security is registered in the
Securities Register.
"Indebtedness" means (without duplication and without regard to any portion
of principal amount that has not accrued and to any interest component thereof
(whether accrued or imputed) that is not due and payable) with respect to any
Person, whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (i) every obligation of such Person for money
borrowed, (ii) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses, (iii) every
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business), (v) every
capital lease obligation of such Person, (vi) every Hedging Obligation, (vii)
every obligation of others secured by a lien on any asset of such Person,
whether or not such obligation is assumed by such Person, (viii) every
obligation of the type referred to in clauses (i) through (vii) of another
Person and all dividends of another Person the payment of which, in either case,
such Person has guaranteed or is responsible or liable, directly or indirectly,
as obligor or otherwise, and (ix) any and all deferrals, renewals, extensions
and refundings of, or amendments, modifications or supplements to any liability
of the kind described in any of the preceding clauses (i) through (viii).
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof and shall
include the terms of each particular series of Securities established as
contemplated by Section 3.1.
"Institutional Accredited Investor" means an institutional accredited
investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act.
"Intercompany Indebtedness" means Indebtedness of the Company to any of its
directly or indirectly owned Subsidiaries.
"Interest Payment Date" means as to each series of Securities the Stated
Maturity of an installment of interest on such Securities.
"Junior Subordinated Debt" means any obligation of the Company to its
creditors, whether now outstanding or subsequently incurred, where the
instrument creating or evidencing the obligations pursuant to which the
obligation provides that it is subordinated and junior in right of payment to
Senior Indebtedness pursuant to subordination provisions substantially similar
to those set forth in this Indenture. Junior Subordinated Debt includes the
Securities.
"Maturity" when used with respect to any Security means the date on which the
principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc.
"Notice of Default" means a written notice of the kind specified in
Section 5.1(3).
"Officers' Certificate" means a certificate signed by the Chairman of the
Board of Directors, a Vice Chairman of the Board of Directors, the President or
a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or
an Assistant Secretary of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company, and who shall be acceptable to the Trustee.
"Original Issue Date" means the date of issuance specified as such in each
Security.
"Other Securities" means Securities transferred, upon exchange or otherwise,
to holders of "Other Capital Securities" as defined in the related Trust
Agreement.
"Outstanding" means, when used in reference to any Securities, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Securities for whose payment money in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent in trust for the
Holders of such Securities; and
(iii) Securities in substitution for or in lieu of which other Securities
have been authenticated and delivered or which have been paid pursuant to
Section 3.6, unless proof satisfactory to the Trustee is presented that any such
Securities are held by Holders in whose hands such Securities are valid, binding
and legal obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which a Responsible Officer of the Trustee
knows to be so owned shall be so disregarded. Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or such other
obligor. Upon the written request of the Trustee, the Company shall furnish to
the Trustee promptly an Officers' Certificate listing and identifying all
Securities, if any, known by the Company to be owned or held by or for the
account of the Company, or any other obligor on the Securities or any Affiliate
of the Company or such obligor, and, subject to the provisions of Section 6.1,
the Trustee shall be entitled to accept such Officers' Certificate as conclusive
evidence of the facts therein set forth and of the fact that all Securities not
listed therein are Outstanding for the purpose of any such determination.
"Paying Agent" means the Trustee or any Person authorized by the Company to
pay the principal of (and premium, if any) or interest on any Securities on
behalf of the Company.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Place of Payment" means, with respect to the Securities of any series, the
place or places where the principal of (and premium, if any) and interest on the
Securities of such series are payable pursuant to Sections 3.1 and 3.11.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any security
authenticated and delivered under Section 3.6 in lieu of a lost, destroyed or
stolen Security shall be deemed to evidence the same debt as the lost, destroyed
or stolen Security.
"Proceeding" has the meaning specified in Section 13.2.
"Property Trustee" means, in respect of any USF&G Trust, the commercial bank
or trust company identified as the "Property Trustee" in the related Trust
Agreement, solely in its capacity as Property Trustee of such USF&G Trust under
such Trust Agreement and not in its individual capacity, or its successor in
interest in such capacity, or any successor property trustee appointed as
therein provided.
"Redemption Date," when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
with respect to the Securities of a series means, unless otherwise provided
pursuant to Section 3.1 with respect to Securities of a series, the date which
is fifteen days next preceding such Interest Payment Date (whether or not a
Business Day).
"Regulation D" means Regulation D under the Securities Act (or any successor
provision), as it may be amended from time to time.
"Responsible Officer" means when used with respect to the Trustee, any
officer assigned to the Corporate Trust Office, including any managing director,
vice president, assistant vice president, assistant treasurer, assistant
secretary or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers, and also,
with respect to a particular matter, any other officer, to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"Restricted Security" means each Security required pursuant to Section 3.6(c)
to bear a Restricted Securities Legend.
"Restricted Securities Certificate" means a certificate substantially in the
form set forth in Annex D.
"Restricted Securities Legend" means a legend substantially in the form of
the legend required in the form of Security set forth in Section 2.2 to be
placed upon a Restricted Security.
"Rights Plan" means a plan of the Company providing for the issuance by the
Company to all holders of its Common Stock of rights entitling the holders
thereof to subscribe for or purchase shares of Common Stock or any class or
series of preferred stock, which rights (i) are deemed to be transferred with
such shares of Common Stock, (ii) are not exercisable and (iii) are also issued
in respect of future issuances of Common Stock, in each case until the
occurrence of a specified event or events.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Ratings Services.
"Securities" or "Security" means any debt securities or debt security, as the
case may be, authenticated and delivered under this Indenture.
"Securities Act" means the Securities Act of 1933 (or any successor statute),
as it may be amended from time to time.
"Securities Register" and "Securities Registrar" have the respective meanings
specified in Section 3.5.
"Senior Indebtedness" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company to the
extent that such claim for post-petition interest is allowed in such proceeding)
payable on, and fees, expenses, reimbursement obligations, indemnity obligations
and other amounts due on or in connection with, any Indebtedness incurred,
assumed or guaranteed by the Company, whether on or prior to the date of the
Indenture or thereafter incurred, assumed or guaranteed, unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are not superior in right of
payment to the Securities or to other Indebtedness which is pari passu with the
Securities. Without limiting the generality of the foregoing, Senior
Indebtedness shall include (i) the Company's Zero Coupon Convertible
Subordinated Notes due 2009 and (ii) Intercompany Indebtedness.
"Special Record Date" for the payment of any Defaulted Interest means a date
fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity" when used with respect to any Security or any installment
of principal thereof or interest thereon means the date specified pursuant to
the terms of such Security as the date on which the principal of such Security
or such installment of interest is due and payable, in the case of such
principal, as such date may be shortened or extended as provided pursuant to the
terms of such Security and this Indenture.
"Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries, or by the Company and one or more other Subsidiaries.
For purposes of this definition, "voting stock" means stock which ordinarily has
voting power for the election of directors, whether at all times or only so long
as no senior class of stock has such voting power by reason of any contingency.
"Successor Security" of any particular Security means every Security issued
after, and evidencing all or a portion of the same debt as that evidenced by,
such particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.6 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Tax Event" means the receipt by a USF&G Trust of an Opinion of Counsel (as
defined in the relevant Trust Agreement) experienced in such matters to the
effect that, as a result of any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Capital Securities of such USF&G Trust, there is more than an
insubstantial risk that (i) such USF&G Trust is, or will be within 90 days of
the date of such Opinion of Counsel, subject to United States Federal income tax
with respect to income received or accrued on the corresponding series of
Securities issued by the Company to such USF&G Trust, (ii) interest payable by
the Company on such corresponding series of Securities is not, or within 90 days
of the date of such Opinion of Counsel, will not be, deductible by the Company,
in whole or in part, for United States Federal income tax purposes or (iii) such
USF&G Trust is, or will be within 90 days of the date of such Opinion of
Counsel, subject to more than a de minimis amount of other taxes, duties or
other governmental charges.
"Trust Agreement" means the Trust Agreement substantially in the form
attached hereto as Annex A, as amended by the form of Amended and Restated Trust
Agreement substantially in the form attached hereto as Annex B, or substantially
in such form as may be specified as contemplated by Section 3.1 with respect to
the Securities of any series, in each case as amended from time to time.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder and, if at any time there is
more than one such Person, "Trustee" as used with respect to the Securities of
any series shall mean the Trustee with respect to Securities of that series.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbb), as amended and as in effect on the date as of this Indenture,
except as provided in Section 9.5.
"Trust Securities" has the meaning specified in the first recital of this
Indenture.
"Unrestricted Securities Certificate" means a certificate substantially in
the form set forth in Annex E.
"Vice President" when used with respect to the Company, means any duly
appointed vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
Section 1.2. Compliance Certificate and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent
(including covenants, compliance with which constitutes a condition precedent),
if any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent (including covenants compliance with which
constitute a condition precedent), if any, have been complied with, except that
in the case of any such application or request as to which the furnishing of
such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than the certificates provided
pursuant to Section 10.4) shall include:
(1) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether, in the opinion of each such individual, such
condition or covenant has been complied with.
Section 1.3. Forms of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or covered
by an opinion of, any specified Person, it is not necessary that all such
matters be certified by, or covered by the opinion of, only one such Person, or
that they be so certified or covered by only one document, but one such Person
may certify or give an opinion with respect to some matters and one or more
other such Persons as to other matters, and any such Person may certify or give
an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based, insofar
as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions, or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1.4. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver or
other action provided by this Indenture to be given to or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments is or are delivered to the
Trustee, and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by
the certificate of any notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a Person acting in other than his individual capacity, such certificate or
affidavit shall also constitute sufficient proof of his authority.
(c) The fact and date of the execution by any Person of any such instrument
or writing, or the authority of the Person executing the same, may also be
proved in any other manner which the Trustee deems sufficient and in accordance
with such reasonable rules as the Trustee may determine.
(d) The ownership of Securities shall be proved by the Securities Register.
(e) Any request, demand, authorization, direction, notice, consent, waiver or
other action by the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the transfer thereof
or in exchange therefor or in lieu thereof in respect of anything done or
suffered to be done by the Trustee or the Company in reliance thereon, whether
or not notation of such action is made upon such Security.
(f) The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to
give, make or take any request, demand, authorization, direction, notice,
consent, waiver or other action provided or permitted by this Indenture to be
given, made or taken by Holders of Securities of such series, provided that the
Company may not set a record date for, and the provisions of this paragraph
shall not apply with respect to, the giving or making of any notice,
declaration, request or direction referred to in the next paragraph. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of the relevant series on such record date, and no other Holders,
shall be entitled to take the relevant action, whether or not such Holders
remain Holders after such record date, provided that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
(as hereinafter in this Section 1.4(f) provided) by Holders of the requisite
principal amount of Outstanding Securities of such series on such record date.
Nothing in this paragraph shall be construed to prevent the Company from setting
a new record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be canceled and of no effect),
and nothing in this paragraph shall be construed to render ineffective any
action taken by Holders of the requisite principal amount of Outstanding
Securities of the relevant series on the date such action is taken. Promptly
after any record date is set pursuant to this paragraph, the Company, at its own
expense, shall cause notice of such record date, the proposed action by Holders
and the applicable Expiration Date to be given to the Trustee in writing and to
each Holder of Securities of the relevant series in the manner set forth in
Section 1.6.
The Trustee may set any day as a record date for the purpose of determining
the Holders of Outstanding Securities of any series entitled to join in the
giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 5.2, (iii) any request to institute
proceedings referred to in Section 5.7(2) or (iv) any direction referred to in
Section 5.12, in each case with respect to Securities of such series. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of such series on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date, provided that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities of such series on such record date. Nothing in this paragraph shall
be construed to prevent the Trustee from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be canceled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Securities of the relevant
series on the date such action is taken. Promptly after any record date is set
pursuant to this paragraph, the Trustee, at the Company's expense, shall cause
notice of such record date, the proposed action by Holders and the applicable
Expiration Date to be given to the Company in writing and to each Holder of
Securities of the relevant series in the manner set forth in Section 1.6.
With respect to any record date set pursuant to this Section, the party
hereto which sets such record dates may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day, provided that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the other party hereto in writing, and
to each Holder of Securities of the relevant series in the manner set forth in
Section 10.6, on or prior to the existing Expiration Date. If an Expiration Date
is not designated with respect to any record date set pursuant to this Section,
the party hereto which set such record date shall be deemed to have initially
designated the 180th day after such record date as the Expiration Date with
respect thereto, subject to its right to change the Expiration Date as provided
in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be
later than the 180th day after the applicable record date.
(g) Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
Section 1.5. Notices, Etc. to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or Act
of Holders or other document provided or permitted by this Indenture to be made
upon, given or furnished to, or filed with,
(1) the Trustee by any Holder, any holder of Capital Securities or the
Company shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee at its Corporate Trust
office, or
(2) the Company by the Trustee, any Holder or any holder of Capital
Securities shall be sufficient for every purpose (except as otherwise provided
in Section 5.1) hereunder if in writing and mailed, first class, postage
prepaid, to the Company addressed to it at the address of its principal office
specified in the first paragraph of this instrument or at any other address
previously furnished in writing to the Trustee by the Company.
Section 1.6. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such notice
shall be sufficiently given (unless otherwise herein expressly provided) if in
writing and mailed, first class postage prepaid, to each Holder affected by such
event, at the address of such Holder as it appears in the Securities Register,
not later than the latest date, and not earlier than the earliest date,
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. In case, by reason of the suspension of or
irregularities in regular mail service or for any other reason, it shall be
impossible or impracticable to mail notice of any event to Holders when said
notice is required to be given pursuant to any provision of this Indenture or of
the relevant Securities, then any manner of giving such notice as shall be
satisfactory to the Trustee shall be deemed to be a sufficient giving of such
notice. Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
Section 1.7. Conflict with Trust Indenture Act.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by any of Sections 310 to 317, inclusive, of the Trust Indenture
Act through operation of Section 318(c) thereof, such imposed duties shall
control. This Indenture, the Company and the Trustee shall be deemed for all
purposes hereof to be subject to and governed by the Trust Indenture Act to the
same extent as would be the case if this Indenture were so qualified on the date
hereof.
Section 1.8. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 1.9. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind its
successors and assigns, whether so expressed or not.
Section 1.10. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 1.11 Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors and
assigns, the holders of Senior Indebtedness, the Holders of the Securities and,
to the extent expressly provided in Sections 5.2, 5.8, 5.9, 5.11, 5.13, 9.1 and
9.2, the holders of Capital Securities, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
Section 1.12. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York.
Section 1.13. Non-Business Days.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or the Securities) payment of interest or
principal (and premium, if any) need not be made on such date, but may be made
on the next succeeding Business Day (and no interest shall accrue for the period
from and after such Interest Payment Date, Redemption Date or Stated Maturity,
as the case may be, until such next succeeding Business Day except that, if such
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day (in each case with the same force and
effect as if made on the Interest Payment Date or Redemption Date or at the
Stated Maturity).
ARTICLE II
SECURITY FORMS
Section 2.1. Forms Generally.
The Securities of each series and the Trustee's certificate of authentication
shall be in substantially the forms set forth in this Article, or in such other
form or forms as shall be established by or pursuant to a Board Resolution or in
one or more indentures supplemental hereto, in each case with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with applicable tax laws or the rules of any securities
exchange or as may, consistently herewith, be determined by the officers
executing such securities, as evidenced by their execution of the Securities. If
the form of Securities of any series is established by action taken pursuant to
a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Company Order
contemplated by Section 3.3 with respect to the authentication and delivery of
such Securities.
The Trustee's certificate of authentication shall be substantially in the
form set forth in this Article.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods, if required by any securities
exchange on which the Securities may be listed, on a steel engraved border or
steel engraved borders or may be produced in any other manner permitted by the
rules of any securities exchange on which the Securities may be listed, all as
determined by the officers executing such Securities, as evidenced by their
execution of such securities.
Securities distributed to holders of Book-Entry Capital Securities upon the
dissolution of a USF&G Trust shall be distributed in the form of one or more
Global Securities registered in the name of a Depository or its nominee, and
deposited with the Security Registrar, as custodian for such Depository, or held
by such Depository, for credit by the Depository to the respective accounts of
the beneficial owners of the Securities represented thereby (or such other
accounts as they may direct). Securities distributed to holders of Capital
Securities other than Book-Entry Capital Securities upon the dissolution of a
USF&G Trust shall not be issued in the form of a Global Security or any other
form intended to facilitate book-entry trading in beneficial interests in such
Securities.
Section 2.2. Form of Face of Security.
THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY AN INVESTOR WHO WAS, PRIOR TO THE
DISTRIBUTION OF THIS SECURITY, HOLDING RELATED CAPITAL SECURITIES AS AN INITIAL
PURCHASER THEREOF (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE
TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR RULE 904 OF REGULATION
S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (4)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B)
BY SUBSEQUENT INVESTORS HOLDING THIS SECURITY IN BOOK-ENTRY FORM AS SET FORTH IN
(A) ABOVE AND, IN ADDITION, TO AN ACCREDITED INVESTOR (AS DEFINED IN REGULATION
D UNDER THE SECURITIES ACT) THAT IS AN INSTITUTIONAL INVESTOR IN A TRANSACTION
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER
JURISDICTIONS OF THE UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE
AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALES OF THIS SECURITY.
THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING
RESTRICTIONS.
USF&G CORPORATION
(Title of Security)
CUSIP NO.
No. $
USF&G Corporation, a corporation organized and existing under the laws of
Maryland (hereinafter called the "Company", which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to , or registered assigns, the principal sum of Dollars,
or such other principal amount as may be set forth in the records of the
Securities Registrar hereinafter referred to in accordance with the Indenture,
on , . The Company further promises to pay interest on said principal sum from ,
or from the most recent interest payment date (each such date, an "Interest
Payment Date") on which interest has been paid or duly provided for
semi-annually (subject to deferral as set forth herein) in arrears on [insert
applicable Interest Payment Dates] of each year, commencing , , at the rate of %
per annum, until the principal hereof shall have become due and payable, plus
Additional Interest, if any, until the principal hereof is paid or duly provided
for or made available for payment [if applicable, insertand on any overdue
principal and (without duplication and to the extent that payment of such
interest is enforceable under applicable law) on any overdue installment of
interest at the rate of % per annum, compounded semi-annually]. The amount of
interest payable for any period less than a full interest period shall be
computed on the basis of twelve 30-day months and a 360-day year and the actual
number of days elapsed in a partial month in a period. The amount of interest
payable for any full interest period shall be computed by dividing the rate per
annum by two. In the event that any date on which interest is payable on this
Security is not a Business Day, then a payment of the interest payable on such
date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on the date the payment was originally payable.
A "Business Day" shall mean any day other than (i) a Saturday or Sunday, (ii) a
day on which banking institutions in the City of New York are authorized or
required by law or executive order to remain closed or (iii) a day on which the
Corporate Trust Office of the Trustee, or the principal office of the Property
Trustee under the Trust Agreement hereinafter referred to for USF&G Capital I is
closed for business. The interest installment so payable, and punctually paid or
duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the Person in whose name this Security (or one or more
Predecessor Securities is registered at the close of business on the Regular
Record Date for such interest installment, which shall be the [insert definition
of Regular Record Dates]. Any such interest installment not so punctually paid
or duly provided for shall forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
of this series not less than 10 days prior to such Special Record Date, or be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities of this series
may be listed, and upon such notice as may be required by such exchange, all as
more fully provided in said Indenture.
So long as no Event of Default has occurred and is continuing, the Company
shall have the right at any time during the term of this Security to defer
payment of interest on this Security, at any time or from time to time, for up
to ten consecutive semi-annual interest payment periods with respect to each
deferral period (each an "Extension Period"), during which Extension Periods the
Company shall have the right to make partial payments of interest on any
Interest Payment Date, and at the end of which the Company shall pay all
interest then accrued and unpaid on the Securities (together with Additional
Interest thereon to the extent permitted by applicable law); provided, however,
that no Extension Period shall extend beyond the Stated Maturity of the
principal of this Security; provided, further, that during any such Extension
Period, the Company shall not, and shall not permit any Subsidiary of the
Company to, (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stocks (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company (including other Securities) that rank pari passu in all respects with
or junior in interest to this Security or (iii) make any guarantee payments with
respect to any guarantee by the Company of the debt securities of any
Subsidiaries of the Company if such guarantee ranks pari passu with or junior in
interest to this Security (other than (a) in securities of the Company junior in
interest to the Securities, (b) any declaration of a dividend in connection with
the implementation of a Rights Plan, the issuance of any Common Stock or any
class or series of preferred stock of the Company under any Rights Plan in the
future or the redemption or repurchase of any rights distributed pursuant to a
Rights Plan, (c) payments under any USF&G Guarantee, (d) purchases of Common
Stock related to the issuance of Common Stock or rights under any of the
Company's benefit plans for its directors, officers or employees, (e) payments
made on any series of Securities upon the stated maturity of such Securities and
(f) payments of accrued dividends (and cash in lieu of fractional shares) upon
conversion into common stock of any convertible preferred stock of the Company
of any series now or hereinafter outstanding, in accordance with the terms of
such stock. Prior to the termination of any such Extension Period, the Company
may further extend the interest payment period, provided that no Extension
Period shall exceed ten (10) consecutive semi-annual periods or extend beyond
the Stated Maturity of the principal of this Security. Upon the termination of
any such Extension Period and upon the payment of all amounts then due on any
Interest Payment Date, the Company may elect to begin a new Extension Period,
subject to the above requirements. No interest shall be due and payable during
an Extension Period except at the end thereof. The Company shall give the
Property Trustee and the Trustee notice of its election to begin any Extension
Period at least one Business Day prior to the earlier of (i) the date on which
Distributions on the Capital Securities would be payable but for such deferral
or (ii) the date the Property Trustee is required to give notice to any
applicable self-regulatory organization or to holders of such Capital Securities
of the record date or the date such Distributions are payable, but in any event
not less than one Business Day prior to such record date. For purposes hereof,
the Company's Senior Indebtedness shall not be deemed to be pari passu with this
Security.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the United States, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Company, payment of
interest may be made (i) by check mailed to the address of the Person entitled
thereto as such address shall appear in the Securities Register or (ii) by wire
transfer in immediately available funds at such place and to such account as may
be designated by the Person entitled thereto as specified in the Securities
Register.
The indebtedness evidenced by this Security is, to the extent provided in the
Indenture, subordinate and junior in right of payments to the prior payment in
full of all Senior Indebtedness, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such actions as may be
necessary or appropriate to effectuate the subordination so provided and (c)
appoints the Trustee his attorney-in-fact for any and all such purposes. Each
Holder hereof, by his acceptance hereof, waives all notice of the acceptance of
the subordination provisions contained herein and in the Indenture by each
holder of Senior Indebtedness, whether now outstanding or hereafter incurred,
and waives reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Security set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
USF&G CORPORATION
By: [President, Vice President,
Treasurer or Assistant Treasurer]
Attest: [Secretary or Assistant Secretary]
Section 2.3. Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the Company
(herein called the "Securities"), issued and to be issued in one or more series
under a Junior Subordinated Indenture, dated as of December 24, 1996 (herein
called the "Indenture"), between the Company and The Bank of New York, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Trustee, the Company and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered. This Security is one of the series
designated on the face hereof, limited in aggregate principal amount to $ .
All terms used in this Security that are defined in the Indenture or in the
Amended and Restated Trust Agreement, dated as of December 24, 1996 as amended
(the "Trust Agreement"), for USF&G Capital I, among USF&G Corporation, as
Depositor, and the Trustees named therein, shall have the meanings assigned to
them in the Indenture or the Trust Agreement, as the case may be.
Upon the occurrence and during the continuation of a Tax Event in respect of
a USF&G Trust, the Company may, at its option, within 90 days of the occurrence
of such Tax Event redeem this Security, in whole but not in part, subject to the
provisions of Section 11.7 and the other provisions of Article XI of the
Indenture, at a redemption price equal to the Make-Whole Amount for a
corresponding principal amount of this Security, together with accrued
Distributions to, but excluding the date fixed for redemption. [insert
appropriate definition of Make-Whole Amount] [In addition, if such Tax Event
relates to the deductibility of interest payable by USF&G on the Securities, and
if the opinion referred to in the definition of Tax Event states that the risk
of non-deductibility would be avoided if the maturity of the Securities were
shortened, the Company may, at its option, shorten the maturity of the
Securities by the amount stated in such opinion to be the minimum extent
required in order to avoid suck risk, but in no event may the Company shorten
the maturity to a Stated Maturity of less than 19 1/2 years from the date of
original issuance. In the event the Company exercises such option to shorten the
maturity, the Company will no longer have the right to redeem the Securities
prior to their Stated Maturity.]
In the event of redemption of this Security in part only, a new Security or
Securities of this series for the unredeemed portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
The Indenture contains provisions for satisfaction and discharge of the
entire indebtedness of this Security upon compliance by the Company with certain
conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee at any time to enter into a supplemental indenture or
indentures for the purpose of modifying in any manner the rights and obligations
of the Company and of the Holders of the Securities, with the consent of the
Holders of not less than a majority in principal amount of the Outstanding
Securities of each series to be affected by such supplemental indenture. The
Indenture also contains provisions permitting Holders of specified percentages
in principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all Securities of such series, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Security shall be conclusive and binding upon such Holder and
upon all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, if an Event of
Default with respect to the Securities of this series at the time Outstanding
occurs and is continuing, then and in every such case the Trustee or the Holders
of not less than 25% in principal amount of the Outstanding Securities of this
series may declare the principal amount of all the Securities of this series to
be due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given by Holders), provided that, in the case of the Securities
of this series issued to a USF&G Trust, if upon an Event of Default, the Trustee
or the Holders of not less than 25% in principal amount of the Outstanding
Securities of this series fails to declare the principal of all the Securities
of this series to be immediately due and payable, the holders of at least 25% in
aggregate Liquidation Amount of the Capital Securities of such USF&G Trust then
outstanding shall have such right by a notice in writing to the Company and the
Trustee; and upon any such declaration the principal amount of and the accrued
interest (including any Additional Interest) on all the Securities of this
series shall become immediately due and payable, provided that the payment of
principal and interest (including any Additional Interest) on such Securities
shall remain subordinated to the extent provided in Article XIII of the
Indenture.
No reference herein to the Indenture and no provision of this Security or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Securities Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company maintained under Section 10.2 of the Indenture duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Securities Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities of this series, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees. No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee shall treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Securities of this series are issuable only in registered form without
coupons in minimum denominations of $100,000 and any integral multiples of
$1,000 in excess thereof. As provided in the Indenture and subject to certain
limitations therein set forth, Securities of this series are exchangeable for a
like aggregate principal amount of Securities of such series of a different
authorized denomination, as requested by the Holder surrendering the same.
The Company and, by its acceptance of this Security or a beneficial interest
therein, the Holder of, and any Person that acquires a beneficial interest in,
this Security agree that for United States Federal, state and local tax purposes
it is intended that this Security constitute indebtedness.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE NEW YORK.
Section 2.4. Additional Provisions Required in Global Security.
Any Global Security issued hereunder shall, in addition to the provisions
contained in Sections 2.2 and 2.3, bear a legend in substantially the following
form:
"THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY."
Section 2.5. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the within mentioned Indenture.
Dated: The Bank of New York
as Trustee
By: Authorized Signatory
ARTICLE III
THE SECURITIES
Section 3.1. Title and Terms.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution, and set forth in an Officers'
Certificate, or established in one or more indentures supplemental hereto, prior
to the issuance of Securities of a series:
(a) the title of the securities of such series, which shall distinguish the
Securities of the series from all other Securities;
(b) the limit, if any, upon the aggregate principal amount of the Securities
of such series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities of the series pursuant
to Section 3.4, 3.5, 3.6, 9.6 or 11.6 and except for any Securities which,
pursuant to Section 3.3, are deemed never to have been authenticated and
delivered hereunder); provided, however, that the authorized aggregate principal
amount of such series may be increased above such amount by a Board Resolution
to such effect;
(c) the Stated Maturity or Maturities on which the principal of the
Securities of such series is payable or the method of determination thereof;
(d) the rate or rates, if any, at which the Securities of such series shall
bear interest, if any, the rate or rates and extent to which Additional
Interest, if any, shall be payable in respect of any Securities of such series,
the Interest Payment Dates on which such interest shall be payable, the right,
pursuant to Section 3.11 or as otherwise set forth therein, of the Company to
defer or extend an Interest Payment Date, and the Regular Record Date for the
interest payable on any Interest Payment Date or the method by which any of the
foregoing shall be determined;
(e) the place or places where the principal of (and premium, if any) and
interest on the Securities of such series shall be payable, the place or places
where the Securities of such series may be presented for registration of
transfer or exchange, and the place or places where notices and demands to or
upon the Company in respect of the Securities of such series may be made;
(f) the period or periods within or the date or dates on which, if any, the
price or prices at which and the terms and conditions upon which the Securities
of such series may be redeemed, in whole or in part, at the option of the
Company;
(g) the obligation or the right, if any, of the Company to redeem, repay or
purchase the Securities of such series pursuant to any sinking fund,
amortization or analogous provisions, or at the option of a Holder thereof, and
the period or periods within which, the price or prices at which, the currency
or currencies (including currency unit or units) in which and the other terms
and conditions upon which Securities of the series shall be redeemed, repaid or
purchased, in whole or in part, pursuant to such obligation;
(h) the denominations in which any Securities of such series shall be
issuable, if other than denominations of $100,000 and any integral multiple of
$1,000 in excess thereof;
(i) if other than Dollars, the currency or currencies (including currency
unit or units) in which the principal of (and premium, if any) and interest, if
any, on the Securities of the series shall be payable, or in which the
Securities of the series shall be denominated and the manner of determining the
equivalent thereof in Dollars for purposes of the definition of Outstanding;
(j) the additions, modifications or deletions, if any, in the Events of
Default or covenants of the Company set forth herein with respect to the
Securities of such series;
(k) if other than the principal amount thereof, the portion of the principal
amount of Securities of such series that shall be payable upon declaration of
acceleration of the Maturity thereof;
(l) the additions or changes, if any, to this Indenture with respect to the
Securities of such series as shall be necessary to permit or facilitate the
issuance of the Securities of such series in bearer form, registrable or not
registrable as to principal, and with or without interest coupons;
(m) any index or indices used to determine the amount of payments of
principal of and premium, if any, on the Securities of such series or the manner
in which such amounts will be determined;
(n) whether the Securities of the series, or any portion thereof, shall
initially be issuable in the form of a temporary Global Security representing
all or such portion of the Securities of such series and provisions for the
exchange of such temporary Global Security for definitive Securities of such
series;
(o) if applicable, that any Securities of the series shall be issuable in
whole or in part in the form of one or more Global Securities and, in such case,
the respective Depositories for such Global Securities, the form of any legend
or legends which shall be borne by any such Global Security in addition to or in
lieu of that set forth in Section 2.4 and any circumstances in addition to or in
lieu of those set forth in Section 3.5 in which any such Global Security may be
exchanged in whole or in part for Securities registered, and any transfer of
such Global Security in whole or in part may be registered, in the name or names
of Persons other than the Depository for such Global Security or a nominee
thereof;
(p) the appointment of any Paying Agent or Agents for the Securities of such
series;
(q) the terms of any right to convert or exchange Securities of such series
into any other securities or property of the Company, and the additions or
changes, if any, to this Indenture with respect to the Securities of such series
to permit or facilitate such conversion or exchange;
(r) the form or forms of the Trust Agreement, Amended and Restated Trust
Agreement and Guarantee Agreement, if different from the forms attached hereto
as Annexes A, B and C, respectively;
(s) the relative degree, if any, to which the Securities of the series shall
be senior to or be subordinated to other series of Securities in right of
payment, whether such other series of Securities are Outstanding or not; and
(t) any other terms of the Securities of such series (which terms shall not
be inconsistent with the provisions of this Indenture).
All Securities of any one series shall be substantially identical except as
to denomination and except as may otherwise be provided herein or in or pursuant
to such Board Resolution and set forth in such Officers' Certificate or in any
such indenture supplemental hereto.
If any of the terms of the series are established by action taken pursuant to
a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article XIII.
Unless otherwise provided with respect to the Securities of any series, at
the option of the Company, interest on the Securities of any series that bears
interest may be paid (i) by mailing a check to the address of the person
entitled thereto as such address shall appear in the Security Register or (ii)
by wire transfer in immediately available funds at such place and to such
account as may be designated by the person entitled thereto as specified in the
Security Register.
Section 3.2. Denominations.
The Securities of each series shall be in registered form without coupons and
shall be issuable in denominations of $100,000 and any integral multiple of
$1,000 in excess thereof, unless otherwise specified as contemplated by Section
3.1.
Section 3.3. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its President,
one of its Vice Presidents, its Treasurer or an Assistant Treasurer under its
corporate seal reproduced or impressed thereon and attested by its Secretary or
one of its Assistant Secretaries. The signature of any of these officers on the
Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities. At any time and from time to
time after the execution and delivery of this Indenture, the Company may deliver
Securities of any series executed by the Company to the Trustee for
authentication, together with a Company Order for the authentication and
delivery of such Securities, and the Trustee in accordance with the Company
Order shall authenticate and deliver such Securities. If the form or terms of
the Securities of the series have been established by or pursuant to one or more
Board Resolutions as permitted by Sections 2.1 and 3.1, in authenticating such
Securities, and accepting the additional responsibilities under this Indenture
in relation to such Securities, the Trustee shall be entitled to receive, and
(subject to Section 6.1) shall be fully protected in relying upon, an Opinion of
Counsel stating,
(1) if the form of such Securities has been established by or pursuant to
Board Resolution as permitted by Section 2.1, that such form has been
established in conformity with the provisions of this Indenture;
(2) if the terms of such Securities have been established by or pursuant to
Board Resolution as permitted by Section 3.1, that such terms have been
established in conformity with the provisions of this Indenture; and
(3) that such Securities, when authenticated and delivered by the Trustee and
issued by the Company in the manner and subject to any conditions specified
in such Opinion of Counsel, will constitute valid and legally binding
obligations of the Company enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 3.1 and of the preceding
paragraph, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 3.1 or the Company Order and Opinion of Counsel
otherwise required pursuant to such preceding paragraph at or prior to the
authentication of each Security of such series if such documents are delivered
at or prior to the authentication upon original issuance of the first Security
of such series to be issued.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be valid
or obligatory for any purpose, unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
officers, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder. Notwithstanding the foregoing, if any Security shall have
been authenticated and delivered hereunder but never issued and sold by the
Company, and the Company shall deliver such Security to the Trustee for
cancellation as provided in Section 3.10, for all purposes of this Indenture
such Security shall be deemed never to have been authenticated and delivered
hereunder and shall never be entitled to the benefits of this Indenture.
Section 3.4. Temporary Securities.
Pending the preparation of definitive Securities of any series, the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any denomination, substantially of the tenor of the
definitive Securities of such series in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities of any series are issued, the Company will cause
definitive Securities of such series to be prepared without unreasonable delay.
After the preparation of definitive Securities, the temporary Securities shall
be exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for that purpose
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor one or more definitive Securities
of the same series, of any authorized denominations having the same Original
Issue Date and Stated Maturity and having the same terms as such temporary
Securities. Until so exchanged, the temporary Securities of any series shall in
all respects be entitled to the same benefits under this Indenture as definitive
Securities of such series.
Section 3.5. Global Securities.
(a) Each Global Security issued under this Agreement shall be registered in
the name of the Depository designated by the Company for such Global Security or
a nominee thereof and delivered to such Depository or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Agreement.
(b) Notwithstanding any other provision in this Agreement, no Global Security
may be exchanged in whole or in part for Securities registered, and no transfer
of a Global Security in whole or in part may be registered, in the name of any
Person other than the Depository for such Global Security or a nominee thereof
unless (a) such Depository advises the Trustee in writing that such Depository
is no longer willing or able to properly discharge its responsibilities as
Depository with respect to such Global Security, and the Company is unable to
locate a qualified successor, (b) the Company executes and delivers to the
Trustee a Company Order stating that the Company elects to terminate the
book-entry system through the Depository, (c) there shall have occurred and be
continuing an Event of Default or (d) pursuant to the following sentence. All or
any portion of a Global Security may be exchanged for a Security that has a like
aggregate principal amount and is not a Global Security upon 20 days' prior
request made by the Depository or its Agent Member to the Securities Registrar.
(c) If any Global Security is to be exchanged for other Securities or
canceled in whole, it shall be surrendered by or on behalf of the Depository or
its nominee to the Security Registrar for exchange or cancellation as provided
in this Article III. If any Global Security is to be exchanged for other
Securities or canceled in part, or if another Security is to be exchanged in
whole or in part for a beneficial interest in any Global Security, then either
(i) such Global Security shall be so surrendered for exchange or cancellation as
provided in this Article III or (ii) the principal amount thereof shall be
reduced, subject to Section 3.6(b)(v), or increased by an amount equal to the
portion thereof to be so exchanged or canceled, or equal to the principal amount
of such other Security to be so exchanged for a beneficial interest therein, as
the case may be, by means of an appropriate adjustment made on the records of
the Security Registrar, whereupon the Trustee, in accordance with the Applicable
Procedures, shall instruct the Depository or its authorized representative to
make a corresponding adjustment to its records. Upon any such surrender or
adjustment of a Global Security by the Depository, accompanied by registration
instructions, the Trustee shall, subject to Section 3.5(b) and as otherwise
provided in this Article III, authenticate and deliver any Securities issuable
in exchange for such Global Security (or any portion thereof) in accordance with
the instructions of the Depository. The Trustee shall not be liable for any
delay in delivery of such instructions and may conclusively rely on, and shall
be fully protected in relying on, such instructions.
(d) Every Security authenticated and delivered upon registration of transfer
of, or in exchange for or in lieu of, a Global Security or any portion thereof,
whether pursuant to this Article III, Section 9.6 or 11.6 or otherwise, shall be
authenticated and delivered in the form of, and shall be, a Global Security,
unless such Security is registered in the name of a Person other than the
Depository for such Global Security or a nominee thereof.
(e) The Depository or its nominee, as registered owner of a Global Security,
shall be the Holder of such Global Security for all purposes under this
Indenture and the Securities, and owners of beneficial interests in a Global
Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security shall be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the Depository or its nominee or its Agent Members.
Neither the Trustee nor the Securities Registrar shall have any liability in
respect of any transfers effected by the Depository.
(f) The rights of owners of beneficial interests in a Global Security shall
be exercised only through the Depository and shall be limited to those
established by law and agreements between such owners and the Depository and/or
its Agent Members.
Section 3.6. Registration, Transfer and Exchange Generally,
Certain Transfers and Exchanges; Securities Act Legends.
(a) The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of Securities and of
transfers of Securities. Such register is herein sometimes referred to as the
"Securities Register." The Trustee is hereby appointed "Securities Registrar"
for the purpose of registering Securities and transfers of Securities as herein
provided.
Upon surrender for registration of transfer of any Security at the office or
agency of the Company designated for that purpose the Company shall execute, and
the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Securities of the same series of any
authorized denominations, of a like aggregate principal amount, of the same
Original Issue Date and Stated Maturity and having the same terms and bearing
such restrictive legends as may be required by this Indenture.
At the option of the Holder, Securities may be exchanged for other Securities
of the same series of any authorized denominations, of a like aggregate
principal amount, of the same Original Issue Date and Stated Maturity and having
the same terms and bearing such restrictive legends as may be required by this
Indenture, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any transfer or exchange of Securities shall be
the valid obligations of the Company, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Securities surrendered upon such
transfer or exchange.
Every Security presented or surrendered for transfer or exchange shall (if so
required by the Company or the Securities Registrar) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Securities Registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be made to a Holder for any transfer or exchange of
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
transfer or exchange of Securities.
Neither the Company nor the Trustee shall be required, pursuant to the
provisions of this Section, (a) to issue, register the transfer of or exchange
any Security of any series during a period beginning at the opening of business
15 days before the day of mailing of a notice of such redemption of Securities
pursuant to Article XI and ending at the close of business on the day of mailing
of notice of redemption or (b) to transfer or exchange any Security so selected
for redemption in whole or in part, except, in the case of any Security to be
redeemed in part, any portion thereof not to be redeemed.
(b) Certain Transfers and Exchanges. Notwithstanding any other provision of
this Indenture, transfers and exchanges of Securities and beneficial interests
in a Global Security of the kinds specified in this Section 3.6(b) shall be made
only in accordance with this Section 3.6(b).
(i) Restricted Non-Global Security to Global Security. If the Holder of a
Restricted Security (other than a Global Security) wishes at any time to
transfer all or any portion of such Security to a Person who wishes to take
delivery thereof in the form of a beneficial interest in a Global Security, such
transfer may be effected only in accordance with the provisions of this Clause
(b)(i) and subject to the Applicable Procedures. Upon receipt by the Security
Registrar of (A) such Security as provided in Section 3.6(a) and instructions
satisfactory to the Security Registrar directing that a beneficial interest in
the Global Security in a specified principal amount not greater than the
principal amount of such Security be credited to a specified Agent Member's
account and (B) a Restricted Securities Certificate duly executed by such Holder
or his attorney duly authorized in writing, then the Security Registrar shall
cancel such Security (and issue a new Security in respect of any untransferred
portion thereof) as provided in Section 3.6(a) and increase the aggregate
principal amount of the Global Security by the specified principal amount as
provided as provided in Section 3.5(c).
(ii) Non-Global Security to Non-Global Security. A Security that is not a
Global Security may be transferred, in whole or in part, to a Person who takes
delivery in the form of another Security that is not a Global Security as
provided in Section 3.6(a), provided that if the Security to be transferred in
whole or in part is a Restricted Security, then the Security Registrar shall
have received a Restricted Securities Certificate duly executed by the
transferor Holder or his attorney duly authorized in writing.
(iii) Exchanges between Global Security and Non-Global Security. A
beneficial interest in a Global Security may be exchanged for a Security that is
not a Global Security as provided in Section 3.5.
(iv) Certain Initial Transfers of Non-Global Securities. In the case of
Securities initially issued other than in global form, an initial transfer or
exchange of such Securities that does not involve any change in beneficial
ownership may be made to an Institutional Accredited Investor or Investors as if
such transfer or exchange were not an initial transfer or exchange; provided
that written certification shall be provided by a Holder of such Securities to
the Securities Registrar that such transfer or exchange does not involve a
change in beneficial ownership.
(v) Limitations relating to Principal Amount. Notwithstanding any other
provision of this Indenture and unless otherwise specified as permitted by
Section 3.1, Securities or portions thereof may be transferred or exchanged only
in principal amounts of not less than $100,000. Any transfer, exchange or other
disposition of Securities in contravention of this Section 3.6(b)(v) shall be
deemed to be void and of no legal effect whatsoever, any such transferee shall
be deemed not to be the Holder or owner of any beneficial interest in such
Securities for any purpose, including but not limited to the receipt of interest
payable on such Securities, and such transferee shall be deemed to have no
interest whatsoever in such Securities.
(c) Restricted Securities Legend. Except as set forth below, all Securities
shall bear a Restricted Securities Legend:
(i) subject to the following Clauses of this Section 3.6(c), a Security
or any portion thereof which is exchanged, upon transfer or otherwise, for a
Global Security or any portion thereof shall bear the Restricted Securities
Legend;
(ii) subject to the following Clauses of this Section 3.6(c), a new
Security which is not a Global Security and is issued in exchange for another
Security (including a Global Security) or any portion thereof, upon transfer or
otherwise, shall bear a Restricted Securities Legend;
(iii) after the date which is three years following the Original Issue
Date of a Security, a new Security (other than a Global Security) which does not
bear a Restricted Securities Legend shall, unless the Securities Registrar is
otherwise instructed by the Company in writing, be issued in exchange for or in
lieu of a Restricted Security or any portion thereof which bears such a legend
if the Trustee has received an Unrestricted Securities Certificate, in the form
of Annex E hereto, duly executed by the Holder of such legended Restricted
Security or his attorney duly authorized in writing, and after such date and
receipt of such certificate, the Trustee shall authenticate and deliver such a
new Security in exchange for or in lieu of such other Security as provided in
this Article III;
(iv) a new Security (other than a Global Security) which does not bear a
Restricted Securities Legend may be issued in exchange for or in lieu of a
Restricted Security or any portion thereof which bears such a legend if, in the
Company's judgment, placing such a legend upon such new Security is not
necessary to ensure compliance with the registration requirements of the
Securities Act, and the Trustee, at the written direction of the Company in the
form of an Officers' Certificate, shall authenticate and deliver such a new
Security as provided in this Article III;
(v) notwithstanding the foregoing provisions of this Section 3.6(c), a
Successor Security of a Security that does not bear a Restricted Securities
Legend shall not bear such form of legend unless the Company has reasonable
cause to believe that such Successor Security is a "restricted security" within
the meaning of Rule 144, in which case the Trustee, at the written direction of
the Company in the form of an Officers' Certificate, shall authenticate and
deliver a new Security bearing a Restricted Securities Legend in exchange for
such Successor Security as provided in this Article III; and
(v) Securities distributed to a holder of Capital Securities upon
dissolution of a USF&G Trust shall bear a Restricted Securities Legend if the
Capital Securities so held bear a similar legend.
Section 3.7. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee together with such
security or indemnity as may be required by the Company or the Trustee to save
each of them harmless, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a new Security of the same issue
and series of like tenor and principal amount, having the same Original Issue
Date and Stated Maturity, and bearing a number not contemporaneously
outstanding.
If there shall be delivered to the Company and to the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security, and (ii)
such security or indemnity as may be required by them to save each of them
harmless, then, in the absence of notice to the Company or the Trustee that such
Security has been acquired by a bona fide purchaser, the Company shall execute
and upon its request the Trustee shall authenticate and deliver, in lieu of any
such destroyed, lost or stolen Security, a new Security of the same issue and
series of like tenor and principal amount, having the same Original Issue Date
and Stated Maturity as such destroyed, lost or stolen Security, and bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become or
is about to become due and payable, the Company in its discretion may, instead
of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any destroyed,
lost or stolen Security shall constitute an original additional contractual
obligation of the Company, whether or not the destroyed, lost or stolen Security
shall be at any time enforceable by anyone, and shall be entitled to all the
benefits of this Indenture equally and proportionately with any and all other
Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
Section 3.8. Payment of Interest; Interest Rights Preserved.
Interest on any Security of any series which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date, shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest
in respect of Securities of such series, except that, unless otherwise provided
in the Securities of such series, interest payable on the Stated Maturity of the
principal of a Security shall be paid to the Person to whom principal is paid.
The initial payment of interest on any Security of any series which is issued
between a Regular Record Date and the related Interest Payment Date shall be
payable as provided in such Security or in the Board Resolution pursuant to
Section 3.1 with respect to the related series of Securities.
Any interest on any Security which is payable, but is not timely paid or duly
provided for, on any Interest Payment Date for Securities of such series (herein
called "Defaulted Interest"), shall forthwith cease to be payable to the
registered Holder on the relevant Regular Record Date by virtue of having been
such Holder, and such Defaulted Interest may be paid by the Company, at its
election in each case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the
Persons in whose names the Securities of such series in respect of which
interest is in default (or their respective Predecessor Securities) are
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed payment, and
at the same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be held
in trust for the benefit of the Persons entitled to such Defaulted Interest as
in this Clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special Record
Date and, in the name and at the expense of the Company, shall cause notice of
the proposed payment of such Defaulted Interest and the Special Record Date
therefor to be mailed, first class, postage prepaid, to each Holder of a
Security of such series at the address of such Holder as it appears in the
Securities Register not less than 10 days prior to such Special Record Date. The
Trustee may, in its discretion, in the name and at the expense of the Company,
cause a similar notice to be published at least once in a newspaper, customarily
published in the English language on each Business Day and of general
circulation in the Borough of Manhattan, the City of New York, but such
publication shall not be a condition precedent to the establishment of such
Special Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the Persons in whose names the Securities of
such series (or their respective Predecessor Securities) are registered on such
Special Record Date and shall no longer be payable pursuant to the following
Clause (2).
(2) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities of the series in respect of which interest is in default
may be listed and, upon such notice as may be required by such exchange (or by
the Trustee if the Securities are not listed), if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this Clause, such
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security delivered
under this Indenture upon transfer of or in exchange for or in lieu of any other
Security shall carry the rights to interest accrued and unpaid, and to accrue,
which were carried by such other Security.
Section 3.9. Persons Deemed Owners.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name any Security is registered as the owner of such
Security for the purpose of receiving payment of principal of and (subject to
Section 3.8) any interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
No holder of any beneficial interest in any Global Security held on its
behalf by a Depository shall have any rights under this Indenture with respect
to such Global Security, and such Depository may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the owner of such Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by a Depository or impair, as between a Depository and
such holders of beneficial interests, the operation of customary practices
governing the exercise of the rights of the Depository (or its nominee) as
Holder of any Security.
Section 3.10. Cancellation.
All Securities surrendered for payment, redemption, transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee, and any such Securities and Securities surrendered directly to the
Trustee for any such purpose shall be promptly canceled by it. The Company may
at any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly canceled by
the Trustee. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section, except as expressly
permitted by this Indenture. All canceled Securities shall be returned to the
Company.
Section 3.11. Computation of Interest.
Except as otherwise specified as contemplated by Section 3.1 for Securities
of any series, interest on the Securities of each series for any partial period
shall be computed on the basis of a 360-day year of twelve 30-day months and the
actual days elapsed in a partial month in such period, and interest on the
Securities of each series for a full period shall be computed by dividing the
rate per annum by the number of interest periods that together constitute a full
twelve months.
Section 3.12. Deferrals of Interest Payment Dates.
If specified as contemplated by Section 2.1 or Section 3.1 with respect to
the Securities of a particular series, so long as no Event of Default has
occurred and is continuing, the Company shall have the right, at any time during
the term of such series, from time to time to defer the payment of interest on
such Securities for such period or periods as may be specified as contemplated
by Section 3.1 (each, an "Extension Period") during which Extension Periods the
Company shall have the right to make partial payments of interest on any
Interest Payment Date. No Extension Period shall end on a date other than an
Interest Payment Date. At the end of any such Extension Period the Company shall
pay all interest then accrued and unpaid on the Securities (together with
Additional Interest thereon, if any, at the rate specified for the Securities of
such series to the extent permitted by applicable law); provided, however, that
no Extension Period shall extend beyond the Stated Maturity of the principal of
the Securities of such series; provided, further, that during any such Extension
Period, the Company shall not, and shall not permit any Subsidiary to, (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of the Company's capital
stock, (ii) make any payment of principal, interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Company (including other
Securities) that rank pari passu in all respects with or junior in interest to
the Securities of such series or (iii) make any guarantee payments with respect
to any guarantee by the Company of the debt securities of any Subsidiary of the
Company if such guarantee ranks pari passu with or junior in interest to the
securities of such series, (other than (a) payments in securities junior in
interest to the Security, (b) any declaration of a dividend in connection with
the implementation of a Rights Plan, the issuance of any Common Stock of any
class or series of preferred stock of the Company under any Rights Plan in the
future or the redemption or repurchase of any rights pursuant thereto, (c)
payments under any USF&G Guarantee, (d) purchases of Common Stock related to the
issuance of Common Stock or rights under any of the Company's benefit plans for
its directors, officers or employees, (e) payments made on any series of
Securities upon the stated maturity of such Securities and (f) payments of
accrued dividends (and cash in lieu of fractional shares) upon conversion into
common stock of any convertible preferred stock of the Company of any series now
or hereinafter outstanding, in accordance with the terms of such stock.). Prior
to the termination of any such Extension Period, the Company may further extend
the interest payment period, provided that no Extension Period shall exceed the
period or periods specified in such Securities or extend beyond the Stated
Maturity of the principal of such Securities. Upon the termination of any
Extension Period and upon the payment of all amounts then due on any Interest
Payment Date, the Company may elect to begin a new Extension Period, subject to
the above requirements. No interest shall be due and payable during an Extension
Period, except at the end thereof. The Company shall give the Property Trustee
and the Trustee notice of its election to begin any such Extension Period at
least one Business Day prior to the earlier of (i) the date the Distributions on
the Capital Securities of such USF&G Trust would have been payable except for
the election to begin such Extension Period or (ii) the date the Property
Trustee of such USF&G Trust is required to give notice to any applicable
self-regulatory organization or to holders of such Capital Securities of the
record date or the date such Distributions are payable, but in any event not
less than one Business Day prior to such record date. For purposes hereof, the
Company's Senior Debt shall not be deemed to be pari passu with the Securities.
The Trustee, at the expense of the Company, shall promptly give notice of the
Company's election to begin any such Extension Period to the Holders of the
Outstanding Securities of such series.
Section 3.13. Right of Set-Off.
With respect to the Securities of a series issued to a USF&G Trust,
notwithstanding anything to the contrary herein, the Company shall have the
right to set-off any payment it is otherwise required to make thereunder in
respect of any such Security to the extent the Company has theretofore made, or
is concurrently on the date of such payment making, a payment under the USF&G
Guarantee relating to such Security or under Section 5.8 hereof.
Section 3.14. Agreed Tax Treatment.
Each Security issued hereunder shall provide that the Company and, by its
acceptance of a Security or a beneficial interest therein, the Holder of, and
any Person that acquires a beneficial interest in, such Security agree that for
United States Federal, state and local tax purposes it is intended that such
Security constitutes indebtedness.
Section 3.15. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption or other related material as a convenience to Holders; provided
that any such notice or other related material may state that no representation
is made as to the correctness of such numbers either as printed on the
Securities or as contained in any notice of redemption or other related material
and that reliance may be placed only on the other identification numbers printed
on the Securities, and any such redemption shall not be affected by any defect
in or omission of such numbers. The Company shall promptly notify the Trustee of
any change in the CUSIP numbers.
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.1. Satisfaction and Discharge of Indenture.
This Indenture shall, upon Company Request, cease to be of
further effect (except as to any surviving rights of registration of transfer or
exchange of Securities herein expressly provided for and as otherwise provided
in this Section 4.1) and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other than (i)
Securities which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 3.6 and (ii) Securities for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust, as provided in Section 10.3) have been delivered to the Trustee for
cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within one
year of the date of deposit, or
(iii) are to be called for redemption within one year by the Trustee
in the name, and at the expense, of the Company,
and the Company, in the case of Clause (B) (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust funds in trust for
such purpose an amount in the currency or currencies in which the Securities of
such series are payable sufficient to pay and discharge the entire indebtedness
on such Securities not theretofore delivered to the Trustee for cancellation,
for principal (and premium, if any) and interest (including any Additional
Interest) to the date of such deposit (in the case of Securities which have
become due and payable) or to the Stated Maturity or Redemption Date, as the
case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel each stating that all conditions precedent herein provided
for relating to the satisfaction and discharge of this Indenture have been
complied with.
Notwithstanding the satisfaction and discharge of this Indenture, or the
earlier resignation or removal of the Trustee or any Authenticating Agent, the
obligations of the Company to the Trustee under Section 6.7, the obligations of
the Company to any Authenticating Agent under Section 6.14 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 4.2 and the last
paragraph of Section 10.3 shall survive.
Section 4.2. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all money
deposited with the Trustee pursuant to Section 4.1 shall be held in trust and
applied by the Trustee, in accordance with the provisions of the Securities and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for the payment of which such money or obligations have been
deposited with or received by the Trustee.
ARTICLE V
REMEDIES
Section 5.1. Events of Default.
"Event of Default," wherever used herein with respect to the Securities of
any series, means any one of the following events that has occurred and is
continuing (whatever the reason for such Event of Default and whether it shall
be voluntary or involuntary or be effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body):
(1) default in the payment of any interest upon any Security of that series,
including any Additional Interest in respect thereof, when it becomes due and
payable, and continuance of such default for a period of 30 days (subject to the
deferral of any due date in the case of an Extension Period); or
(2) default in the payment of the principal of (or premium, if any, on) any
Security of that series whether at its Maturity, upon its redemption, by
declaration of acceleration or otherwise; or
(3) default in the performance, or breach, in any material respect, of any
covenant of the Company in this Indenture (other than a covenant a default in
the performance of which or the breach of which is elsewhere in this Section
specifically dealt with), and continuance of such default or breach for a period
of 90 days after there has been given, by registered or certified mail, to the
Company by the Trustee or by the Holders of at least 25% in principal amount of
the Outstanding Securities of that series a written notice specifying such
default or breach and requiring it to be remedied; or
(4) the entry of a decree or order for relief in respect of the Company by a
court having jurisdiction in the premises in an involuntary case under Federal
or State bankruptcy laws, as now or hereafter constituted, and the continuance
of any such decree or order unstayed and in effect for a period of 60
consecutive days; or
(5) the commencement by the Company of a voluntary case under Federal or
State bankruptcy laws, as now or hereafter constituted, or the consent by the
Company to the entry of a decree or order for relief in an involuntary case
under any such laws; or
(6) any other Event of Default provided with respect to Securities of that
series.
Section 5.2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in Section
5.1(4) or 5.1(5)) with respect to Securities of any series at the time
Outstanding occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series may declare the principal amount (or, if the
Securities of that series are Discount Securities, such portion of the principal
amount as may be specified in the terms of that series) of all the Securities of
that series to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), provided that, in the case of
the Securities of a series issued to a USF&G Trust, if, upon an Event of
Default, the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Securities of that series fail to declare the principal of all
the Securities of that series to be immediately due and payable, the holders of
at least 25% in aggregate Liquidation Amount (as defined in the related Trust
Agreement) of the corresponding series of Capital Securities then outstanding
shall have such right by a notice in writing to the Company and the Trustee; and
upon any such declaration such principal amount (or specified portion thereof)
of and the accrued interest (including any Additional Interest) on all the
Securities of such series shall become immediately due and payable. Payment of
principal and interest (including any Additional Interest) on such Securities
shall remain subordinated to the extent provided in Article XIII notwithstanding
that such amount shall become immediately due and payable as herein provided. If
an Event of Default specified in Section 5.1(4) or 5.1(5) with respect to
Securities of any series at the time Outstanding occurs, the principal amount of
all the Securities of that series (or, if the Securities of that series are
Discount Securities, such portion of the principal amount of such Securities as
may be specified by the terms of that series) shall automatically, and without
any declaration or other action on the part of the Trustee or any Holder, become
immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(A) all overdue installments of interest (including any Additional
Interest) on all Securities of that series,
(B) the principal of (and premium, if any, on) any Securities of that
series which have become due otherwise than by such declaration of acceleration
and interest thereon at the rate borne by the Securities, and
(C) all sums paid or advanced by the Trustee hereunder and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel; and
(2) all Events of Default with respect to Securities of that series, other
than the non-payment of the principal of Securities of that series which has
become due solely by such acceleration, have been cured or waived as provided in
Section 5.13.
In the case of Securities of a series issued to a USF&G Trust, the holders of
a majority in aggregate Liquidation Amount (as defined in the related Trust
Agreement) of the related series of Capital Securities issued by such USF&G
Trust shall also have the right to rescind and annul such declaration and its
consequences by written notice to the Company and the Trustee, subject to the
satisfaction of the conditions set forth in Clauses (1) and (2) above of this
Section 5.2.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Section 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if:
(1) default is made in the payment of any installment of interest (including
any Additional Interest) on any Security when such interest becomes due and
payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of (and premium, if
any, on) any Security at the Maturity thereof, the Company will, upon demand of
the Trustee, pay to the Trustee, for the benefit of the Holders of such
Securities, the whole amount then due and payable on such Securities for
principal, including any sinking fund payment or analogous obligations (and
premium, if any) and interest (including any Additional Interest); and, in
addition thereto, all amounts owing the Trustee under Section 6.7.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default with respect to Securities of any series occurs and is
continuing, the Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
Section 5.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors,
(a) the Trustee (irrespective of whether the principal of the Securities of
any series shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
on the Company for the payment of overdue principal (and premium, if any) or
interest (including any Additional Interest)) shall be entitled and empowered,
by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest (including any Additional Interest) owing and
unpaid in respect to the Securities and to file such other papers or documents
as may be necessary or advisable and to take any and all actions as are
authorized under the Trust Indenture Act in order to have the claims of the
Holders and any predecessor to the Trustee under Section 6.7 allowed in any such
judicial proceedings; and
(ii) in particular, the Trustee shall be authorized to collect and receive
any moneys or other property payable or deliverable on any such claims and to
distribute the same in accordance with Section 5.6; and
(b) any custodian, receiver, assignee, trustee, liquidator, sequestrator (or
other similar official) in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee for distribution in accordance
with Section 5.6, and in the event that the Trustee shall consent to the making
of such payments directly to the Holders, to pay to the Trustee any amount due
to it and any predecessor Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
Section 5.5. Trustee May Enforce Claim Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may be
prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of all the amounts owing the Trustee and any predecessor Trustee
under Section 6.7, its agents and counsel, be for the ratable benefit of the
Holders of the Securities in respect of which such judgment has been recovered.
Section 5.6. Application of Money Collected.
Any money or property collected or to be applied by the Trustee with respect
to a series of Securities pursuant to this Article shall be applied in the
following order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money or property on account of principal (or premium, if
any) or interest (including any Additional Interest), upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any predecessor
Trustee;
SECOND: Subject to Article XIII, to the payment of the amounts then due and
unpaid upon such series of Securities for principal (and premium, if any) and
interest (including any Additional Interest), in respect of which or for the
benefit of which such money has been collected, ratably, without preference or
priority of any kind, according to the amounts due and payable on such series of
Securities for principal (and premium, if any) and interest (including any
Additional Interest), respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
Section 5.7. Limitation on Suits.
No Holder of any Securities of any series shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture or for the
appointment of a receiver, assignee, trustee, liquidator, sequestrator (or other
similar official) or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
(2) the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable indemnity
against the costs, expenses and liabilities to be incurred in compliance with
such request;
(4) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to the
Trustee during such 60-day period by the Holders of a majority in principal
amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing itself of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Securities, or to obtain or to seek to obtain priority or
preference over any other of such Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all such Holders.
Section 5.8. Unconditional Right of Holders to Receive Principal, Premium
and Interest; Direct Action by Holders of Capital Securities.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right which is absolute and unconditional to receive
payment of the principal of (and premium, if any) and (subject to Section 3.8)
interest (including any Additional Interest) on such Security on the respective
Stated Maturities expressed in such Security (or, in the case of redemption, on
the Redemption Date) and to institute suit for the enforcement of any such
payment, and such right shall not be impaired without the consent of such
Holder. In the case of Securities of a series issued to a USF&G Trust, any
holder of the corresponding series of Capital Securities issued by such USF&G
Trust shall have the right, upon the occurrence of an Event of Default described
in Section 5.1(1) or 5.1(2), to institute a suit directly against the Company
for enforcement of payment to such holder of principal of (premium, if any) and
(subject to Section 3.8) interest (including any Additional Interest) on the
Securities having a principal amount equal to the aggregate Liquidation Amount
(as defined in the Trust Agreement under which such USF&G Trust is formed) of
such Capital Securities of the corresponding series held by such holder.
Section 5.9. Restoration of Rights and Remedies.
If the Trustee, any Holder or any holder of Capital Securities has instituted
any proceeding to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee, such Holder or such holder of Capital
Securities, then and in every such case the Company, the Trustee, the Holders
and such holder of Capital Securities shall, subject to any determination in
such proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Trustee, the
Holders and the holders of Capital Securities shall continue as though no such
proceeding had been instituted.
Section 5.10. Rights and Remedies Cumulative.
Except as otherwise provided in the last paragraph of Section 3.6, no right
or remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee, any Holder of any Security or any holder
of any Capital Security to exercise any right or remedy accruing upon any Event
of Default shall impair any such right or remedy or constitute a waiver of any
such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to
the Holders and the right and remedy given to the holders of Capital Securities
by Section 5.8 may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee, the Holders or the holders of Capital Securities, as
the case may be.
Section 5.12. Control by Holders.
The Holders of a majority in principal amount of the Outstanding Securities
of any series shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, with respect to the Securities of
such series, provided that:
(1) such direction shall not be in conflict with any rule of
law or with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) subject to the provisions of Section 6.1, the Trustee shall have the
right to decline to follow such direction if a Responsible Officer or Officers
of the Trustee shall, in good faith, determine that the proceeding so directed
would be unjustly prejudicial to the Holders not joining in any such direction
or would involve the Trustee in personal liability.
Section 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series affected thereby and, in the case of any
Securities of a series issued to a USF&G Trust, the holders of a majority in
aggregate Liquidation Amount (as defined in the related Trust Agreement) of
Capital Securities issued by such USF&G Trust, may waive any past default
hereunder and its consequences with respect to such series except a default:
(1) in the payment of the principal of (or premium, if any) or
interest (including any Additional Interest) on any Security of
such series, unless
(A) the Company has paid or deposited with the Trustee a sum sufficient to
pay:
(i) all overdue installments of interest (including any Additional
Interest) on all Securities of that series,
(ii) the principal of (and premium, if any, on) any Securities of that
series which have become due otherwise than by such declaration of acceleration
and interest thereon at the rate borne by the Securities, and
(iii) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; or
(2) in respect of a covenant or provision hereof which under Article IX
cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected.
Any such waiver shall be deemed to be on behalf of the Holders of all the
Securities of such series or, in the case of a waiver by holders of Capital
Securities issued by such USF&G Trust, by all holders of Capital Securities
issued by such USF&G Trust.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
Section 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant; but
the provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities of
any series, or to any suit instituted by any Holder for the enforcement of the
payment of the principal of (or premium, if any) or interest (including any
Additional Interest) on any Security on or after the respective Stated
Maturities expressed in such Security.
Section 5.15. Waiver of Usury, Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it will
not at any time insist upon, or plead, or in any manner whatsoever claim or take
the benefit or advantage of, any usury, stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VI
THE TRUSTEE
Section 6.1. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such duties as
are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but in the case of any such
certificates or opinions which by any provisions hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture.
(b) In case an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act,
or its own willful misconduct except that
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in good
faith by a Responsible Officer, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of
Holders pursuant to Section 5.12 relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee, under this Indenture with respect
to the Securities of such series.
(d) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if there shall be reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(e) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
Section 6.2. Notice of Defaults.
Within 90 days after actual knowledge by a Responsible Officer of the Trustee
of the occurrence of any default hereunder with respect to the Securities of any
series, the Trustee shall transmit by mail to all Holders of Securities of such
series, as their names and addresses appear in the Securities Register, notice
of such default, unless such default shall have been cured or waived; provided,
however, that, except in the case of a default in the payment of the principal
of (or premium, if any) or interest (including any Additional Interest) on any
Security of such series, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determines that the withholding of such notice is in the interests of the
Holders of Securities of such series; and provided, further, that, in the case
of any default of the character specified in Section 5.1(3), no such notice to
Holders of Securities of such series shall be given until at least 30 days after
the occurrence thereof. For the purpose of this Section, the term "default"
means any event which is, or after notice or lapse of time or both would become,
an Event of Default with respect to Securities of such series.
Section 6.3. Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(a) the Trustee may rely and shall be protected in acting or refraining from
acting upon any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, Security or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall deem
it desirable that a matter be proved or established prior to taking, suffering
or omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, rely upon
an Officers' Certificate;
(d) the Trustee may consult with counsel of its selection and the advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights or
powers vested in it by this Indenture at the request or direction of any of the
Holders pursuant to this Indenture, unless such Holders shall have offered to
the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(f) the Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, indenture,
Security or other paper or document, but the Trustee in its discretion may make
such inquiry or investigation into such facts or matters as it may see fit, and,
if the Trustee shall determine to make such inquiry or investigation, it shall
be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or perform
any duties hereunder either directly or by or through agents or attorneys and
the Trustee shall not be responsible for any misconduct or negligence on the
part of any agent or attorney appointed with due care by it hereunder;
(h) the Trustee shall not be under any obligation to take any action that is
discretionary under the provisions of this Indenture;
(i) the Trustee shall not be charged with knowledge of any Event of Default
unless either (i) a Responsible Officer of the Trustee shall have actual
knowledge thereof or (2) the Trustee shall have received notice thereof in
accordance with Section 1.5(1) hereof from the Company or a Holder; and
(j) no permissive power or authority available to the Trustee shall be
construed as a duty.
Section 6.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and neither the Trustee nor any Authenticating Agent assumes any responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Securities. Neither the Trustee nor
any Authenticating Agent shall be accountable for the use or application by the
Company of the Securities or the proceeds thereof.
Section 6.5. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Securities
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
6.8 and 6.13, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Securities
Registrar or such other agent.
Section 6.6. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed in writing with the Company.
Section 6.7. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time such compensation as shall have
been agreed to in writing between the Company and the Trustee for all services
rendered by it hereunder in such amounts as the Company and the Trustee shall
agree from time to time (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust);
(2) to reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any provision of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad faith;
and
(3) to indemnify each Trustee or any Predecessor Trustee for, and to hold it
harmless against, any and all loss, liability, damage, claim or expense
(including the reasonable compensation and the expenses and disbursements of its
agents and counsel) incurred without negligence or bad faith, arising out of or
in connection with the acceptance or administration of this trust or the
performance of its duties hereunder, including the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder.
The obligations of the Company under this Section 6.7 shall survive the
termination of the Indenture or the earlier resignation or removal of the
Trustee.
To secure the Company's payment obligations in this Section, the Company and
the Holders agree that the Trustee shall have a lien prior to the Securities on
all money or property held or collected by the Trustee. Such lien shall survive
the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.1(4) or (5) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under the Bankruptcy Reform Act of 1978 or any successor statute.
Section 6.8. Disqualification; Conflicting Interests.
The Trustee for the Securities of any series issued hereunder shall be
subject to the provisions of Section 310(b) of the Trust Indenture Act. Nothing
herein shall prevent the Trustee from filing with the Commission the application
referred to in the second to last paragraph of said Section 310(b).
Section 6.9. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
(a) a corporation organized and doing business under the laws of the United
States of America or of any State or Territory or the District of Columbia,
authorized under such laws to exercise corporate trust powers and subject to
supervision or examination by Federal, State, Territorial or District of
Columbia authority, or
(b) a corporation or other Person organized and doing business under the laws
of a foreign government that is permitted to act as Trustee pursuant to a rule,
regulation or order of the Commission, authorized under such laws to exercise
corporate trust powers, and subject to supervision or examination by authority
of such foreign government or a political subdivision thereof substantially
equivalent to supervision or examination applicable to United States
institutional trustees,
in either case having a combined capital and surplus of at least $50,000,000,
subject to supervision or examination by Federal or State authority. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then,
for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article. Neither the Company nor any Person directly or indirectly
controlling, controlled by or under common control with the Company shall serve
as Trustee for the Securities of any series issued hereunder.
Section 6.10. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time with respect to the Securities of one
or more series by giving written notice thereof to the Company. If an instrument
of acceptance by a successor Trustee shall not have been delivered to the
Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition, at the expense of the Company, any court of
competent jurisdiction for the appointment of a successor Trustee with respect
to the Securities of such series.
(c) The Trustee may be removed at any time with respect to the Securities of
any series by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series, delivered to the Trustee and to the
Company. If an instrument of acceptance by a successor Trustee shall not have
been delivered to the Trustee within 30 days after the giving of such notice of
removal, the removed Trustee may petition, at the expense of the Company, any
court of competent jurisdiction for the appointment of a successor Trustee with
respect to the Securities of such series
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.8 after written request
therefor by the Company or by any Holder who has been a bona fide Holder of a
Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.9 and shall fail
to resign after written request therefor by the Company or by any such Holder,
or
(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall be
appointed or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (i) the Company, acting pursuant to the authority of a
Board Resolution, may remove the Trustee with respect to all Securities, or (ii)
subject to Section 5.14, any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Trustee with respect to all Securities and the appointment of a successor
Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of acting, or
if a vacancy shall occur in the office of the Trustee for any cause with respect
to the Securities of one or more series, the Company, by a Board Resolution,
shall promptly appoint a successor Trustee with respect to the Securities of
that or those series. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of any series shall be appointed by Act of the Holders
of a majority in principal amount of the Outstanding Securities of such series
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee with respect to the Securities of such series and supersede
the successor Trustee appointed by the Company. If no successor Trustee with
respect to the Securities of any series shall have been so appointed by the
Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Security for at least
six months may, subject to Section 5.14, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
(f) The Company shall give notice of each resignation and each removal of the
Trustee with respect to the Securities of any series and each appointment of a
successor Trustee with respect to the Securities of any series by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Securities of such series as their names and addresses appear in the
Securities Register. Each notice shall include the name of the successor Trustee
with respect to the Securities of such series and the address of its Corporate
Trust Office.
Section 6.11. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with respect
to all Securities, every such successor Trustee so appointed shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with respect
to the Securities of one or more series, the Company, the retiring Trustee and
each successor Trustee with respect to the Securities of one or more series
shall execute and deliver an instrument in writing or an indenture supplemental
hereto wherein each successor Trustee shall accept such appointment and which
(i) shall contain such provisions as shall be necessary or desirable to transfer
and confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (ii)
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(iii) shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such instrument in writing or supplemental indenture shall constitute such
Trustees co-trustees of the same trust and that each such Trustee shall be
trustee of a trust or trusts hereunder separate and apart from any trust or
trusts hereunder administered by any other such Trustee; and upon the execution
and delivery of such instrument in writing or supplemental indenture the
resignation or removal of the retiring Trustee shall become effective to the
extent provided therein and each such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers,
trusts, and duties of the retiring Trustee with respect to the Securities of
that or those series to which the appointment of such successor Trustee relates;
but, on request of the Company or any successor Trustee, such retiring Trustee
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder with respect to the Securities
of that or those series to which the appointment of such successor Trustee
relates.
(c) Upon request of any such successor Trustee, the Company shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor Trustee all rights, powers and trusts referred to in paragraph
(a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be eligible under this Article.
Section 6.12. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated, and in case any
Securities shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor Trustee or in
the name of such successor Trustee, and in all cases the certificate of
authentication shall have the full force which it is provided anywhere in the
Securities or in this Indenture that the certificate of the Trustee shall have.
Section 6.13. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or any
other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
Section 6.14. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents with respect to one
or more series of Securities which shall be authorized to act on behalf of the
Trustee to authenticate Securities of such series issued upon original issue and
upon exchange, registration of transfer or partial redemption thereof or
pursuant to Section 3.6, and Securities so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, or of any State or Territory or
the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which such Authenticating Agent shall be
a party, or any corporation succeeding to all or substantially all of the
corporate trust business of an Authenticating Agent shall be the successor
Authenticating Agent hereunder, provided such corporation shall be otherwise
eligible under this Section, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 1.6 to all Holders of Securities
of the series with respect to which such Authenticating Agent will serve. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provision of this Section.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section.
If an appointment with respect to one or more series is made pursuant to this
Section, the Securities of such series may have endorsed thereon, in addition to
the Trustee's certificate of authentication, an alternative certificate of
authentication in the following form:
This is one of the Securities referred to in the within mentioned Indenture.
Dated: The Bank of New York
As Trustee
By:
As Authenticating Agent
By:
Authorized Officer
ARTICLE VII
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not more than 15 days after each Regular Record Date in
each year, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within 30 days
after the receipt by the Company of any such request, a list of similar form and
content as of a date not more than 15 days prior to the time such list is
furnished,
excluding from any such list names and addresses received by the Trustee in its
capacity as Securities Registrar.
Section 7.2. Preservation of Information, Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Securities
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.1 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights and privileges of the Trustee, shall be as provided in the Trust
Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of the
disclosure of information as to the names and addresses of the Holders made
pursuant to the Trust Indenture Act.
Section 7.3. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports concerning the Trustee
and its actions under this Indenture as may be required pursuant to the Trust
Indenture Act, at the times and in the manner provided pursuant thereto.
(b) Reports so required to be transmitted at stated intervals of not more
than 12 months shall be transmitted no later than 60 days after May 15 in each
calendar year, commencing 60 days after the first May 15 after the first
issuance of Securities under this Indenture.
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each securities exchange upon which any
Securities are listed and also with the Commission. The Company will promptly
notify the Trustee when any Securities are listed on any securities exchange.
Section 7.4. Reports by Company.
The Company shall file with the Trustee and with the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided in the Trust Indenture Act; provided that any
such information, documents or reports required to be filed with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act shall be filed with
the Trustee within 15 days after the same is required to be filed with the
Commission. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall continue to file with the Commission and provide the
Trustee with the annual reports and the information, documents and other reports
which are specified in Sections 13 and 15(d) of the Exchange Act. The Company
also shall comply with the other provisions of Trust Indenture Act Section
314(a). Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein, including
the Company's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, and no Person shall consolidate with or merge into the Company or
convey, transfer or lease its properties and assets substantially as an entirety
to the Company, unless:
(1) in case the Company shall consolidate with or merge into another Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, the corporation formed by such consolidation or into
which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall be a corporation, partnership or trust
organized and existing under the laws of the United States of America or any
State or the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form satisfactory
to the Trustee, the due and punctual payment of the principal of (and premium,
if any) and interest (including any Additional Interest) on all the Securities
and the performance of every covenant of this Indenture on the part of the
Company to be performed or observed;
(2) immediately after giving effect to such transaction, no Event of Default,
and no event which, after notice or lapse of time, or both, would become an
Event of Default, shall have happened and be continuing;
(3) in the case of the Securities of a series issued to a USF&G Trust, such
consolidation, merger, conveyance, transfer or lease is permitted under the
related Trust Agreement and USF&G Guarantee and does not give rise to any breach
or violation of the related Trust Agreement or USF&G Guarantee; and
(4) the Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger, conveyance,
transfer or lease and any such supplemental indenture comply with this Article
and that all conditions precedent herein provided for relating to such
transaction have been complied with; and the Trustee, subject to Section 6.1,
may rely upon such Officers' Certificate and Opinion of Counsel as conclusive
evidence that such transaction complies with this Section 8.1.
Section 8.2. Successor Corporation Substituted.
Upon any consolidation or merger by the Company with or into any other
Person, or any conveyance, transfer or lease by the Company of its properties
and assets substantially as an entirety to any Person in accordance with Section
8.1, the successor corporation formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein; and in the event of any such
conveyance, transfer or lease the Company shall be discharged from all
obligations and covenants under the Indenture and the Securities and may be
dissolved and liquidated.
Such successor Person may cause to be signed, and may issue either in its own
name or in the name of the Company, any or all of the Securities issuable
hereunder which theretofore shall not have been signed by the Company and
delivered to the Trustee; and, upon the order of such successor Person instead
of the Company and subject to all the terms, conditions and limitations in this
Indenture prescribed, the Trustee shall authenticate and shall deliver any
Securities which previously shall have been signed and delivered by the officers
of the Company to the Trustee for authentication pursuant to such provisions and
any Securities which such successor Person thereafter shall cause to be signed
and delivered to the Trustee on its behalf for the purpose pursuant to such
provisions. All the Securities so issued shall in all respects have the same
legal rank and benefit under this Indenture as the Securities theretofore or
thereafter issued in accordance with the terms of this Indenture as though all
of such Securities had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, conveyance or lease, such
changes in phraseology and form may be made in the Securities thereafter to be
issued as may be appropriate.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:
(1) to evidence the succession of another Person to the Company, and the
assumption by any such successor of the covenants of the Company herein and in
the Securities contained; or
(2) to convey, transfer, assign, mortgage or pledge any property to or with
the Trustee or to surrender any right or power herein conferred upon the
Company; or
(3) to establish the form or terms of Securities of any series as permitted
by Sections 2.1 or 3.1; or
(4) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Securities (and if such covenants are to be for the benefit
of less than all series of Securities, stating that such covenants are expressly
being included solely for the benefit of such series) or to surrender any right
or power herein conferred upon the Company; or
(5) to add any additional Events of Default for the benefit of the Holders of
all or any series of Securities (and if such additional Events of Default are to
be for the benefit of less than all series of Securities, stating that such
additional Events of Default are expressly being included solely for the benefit
of such series); or
(6) to change or eliminate any of the provisions of this Indenture, provided
that any such change or elimination (a) shall become effective only when there
is no Security Outstanding of any series created prior to the execution of such
supplemental indenture which is entitled to the benefit of such provision or (b)
shall not apply to any Outstanding Securities; or
(7) to cure any ambiguity, to correct or supplement any provision herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising under
this Indenture, provided that such action pursuant to this clause (7) shall not
adversely affect the interest of the Holders of Securities of any series in any
material respect or, in the case of the Securities of a series issued to a USF&G
Trust and for so long as any of the corresponding series of Capital Securities
issued by such USF&G Trust shall remain outstanding, the holders of such Capital
Securities; or
(8) to evidence and provide for the acceptance of appointment hereunder by a
successor Trustee with respect to the Securities of one or more series and to
add to or change any of the provisions of this Indenture as shall be necessary
to provide for or facilitate the administration of the trusts hereunder by more
than one Trustee, pursuant to the requirements of Section 6.11(b); or
(9) to comply with the requirements of the Commission in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act.
Section 9.2. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders of Securities of such series under this Indenture; provided, however,
that no such supplemental indenture shall, without the consent of the Holder of
each Outstanding Security affected thereby,
(1) except to the extent permitted by Section 3.12 or as otherwise specified
as contemplated by Section 2.1 or Section 3.1 with respect to the deferral of
the payment of interest on the Securities of any series, change the Stated
Maturity of the principal of, or any installment of interest (including any
Additional Interest) on, any Security, or reduce the principal amount thereof or
the rate of interest thereon or reduce any premium payable upon the redemption
thereof, or reduce the amount of principal of a Discount Security that would be
due and payable upon a declaration of acceleration of the Maturity thereof
pursuant to Section 5.2, or change the place of payment where, or the coin or
currency in which, any Security or interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment on or after the
Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding Securities
of any series, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section, Section 5.13 or Section
10.5, except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent of
the Holder of each Security affected thereby; provided, further, that, in the
case of the Securities of a series issued to a USF&G Trust, so long as any of
the corresponding series of Capital Securities issued by such USF&G Trust
remains outstanding, (i) no such amendment shall be made that adversely affects
the holders of such Capital Securities in any material respect, and no
termination of this Indenture shall occur, and no waiver of any Event of Default
or compliance with any covenant under this Indenture shall be effective, without
the prior consent of the holders of at least a majority of the aggregate
Liquidation Amount of such Capital Securities then outstanding unless and until
the principal (and premium, if any) of the Securities of such series and all
accrued and, subject to Section 3.8, unpaid interest (including any Additional
Interest) thereon have been paid in full and (ii) no amendment shall be made to
Section 5.8 of this Indenture that would impair the rights of the holders of
Capital Securities provided therein without the prior consent of the holders of
each Capital Security then outstanding unless and until the principal (and
premium, if any) of the Securities of such series and all accrued and (subject
to Section 3.8) unpaid interest (including any Additional Interest) thereon have
been paid in full.
A supplemental indenture that changes or eliminates any covenant or other
provision of this Indenture that has expressly been included solely for the
benefit of one or more particular series of Securities or Capital Securities, or
which modifies the rights of the Holders of Securities or holders of Capital
Securities of such series with respect to such covenant or other provision,
shall be deemed not to affect the rights under this Indenture of the Holders of
Securities or holders of Capital Securities of any other series.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
Section 9.3. Execution of Supplemental Indentures
In executing or accepting the additional trusts created by any supplemental
indenture permitted by this Article or the modifications thereby of the trusts
created by this Indenture, the Trustee shall be entitled to receive, and
(subject to Section 6.1) shall be fully protected in relying upon, an Officers'
Certificate and an Opinion of Counsel stating that the execution of such
supplemental indenture is authorized or permitted by this Indenture, and that
all conditions precedent have been complied with. The Trustee may, but shall not
be obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise or
that may subject it to any liability.
Section 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 9.5. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall conform
to the requirements of the Trust Indenture Act as then in effect.
Section 9.6. Reference in Securities to Supplemental
Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Company, bear a notation in form approved by the Company as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform, in the opinion of the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities of such series.
ARTICLE X
COVENANTS
Section 10.1. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of each series of securities
that it will duly and punctually pay the principal of (and premium, if any) and
interest on the Securities of that series in accordance with the terms of such
Securities and this Indenture.
Section 10.2. Maintenance of Office or Agency.
The Company will maintain in each Place of Payment for any series of
Securities, an office or agency where Securities of that series may be presented
or surrendered for payment and an office or agency where Securities of that
series may be surrendered for transfer or exchange and where notices and demands
to or upon the Company in respect of the Securities of that series and this
Indenture may be served. The Company initially appoints the Trustee, acting
through its Corporate Trust Office, as its agent for said purposes. The Company
will give prompt written notice to the Trustee of any change in the location of
any such office or agency. If at any time the Company shall fail to maintain
such office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other offices or
agencies where the Securities may be presented or surrendered for any or all of
such purposes, and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in each Place of
Payment for Securities of any series for such purposes. The Company will give
prompt written notice to the Trustee of any such designation and any change in
the location of any such office or agency.
Section 10.3. Money for Security Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent with respect to
any series of Securities, it will, on or before each due date of the principal
of (and premium, if any) or interest on any of the Securities of such series,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal (and premium, if any) or interest so
becoming due until such sums shall be paid to such Persons or otherwise disposed
of as herein provided, and will promptly notify the Trustee of its failure so to
act.
Whenever the Company shall have one or more Paying Agents, it will, prior to
10:00 a.m. New York City time on each due date of the principal of or interest
on any Securities, deposit with a Paying Agent a sum sufficient to pay the
principal (and premium, if any) or interest so becoming due, such sum to be held
in trust for the benefit of the Persons entitled to such principal and premium
(if any) or interest, and (unless such Paying Agent is the Trustee) the Company
will promptly notify the Trustee of its failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other
obligor upon the Securities) in the making of any payment of principal (and
premium, if any) or interest;
(3) at any time during the continuance of any such default, upon the written
request of the Trustee, forthwith pay to the Trustee all sums so held in trust
by such Paying Agent; and
(4) comply with the provisions of the Trust Indenture Act applicable to it
as a Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by the
Company, in trust for the payment of the principal of (and premium, if any) or
interest on any Security and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall be
paid on Company Request to the Company, or (if then held by the Company) shall
(unless otherwise required by mandatory provision of applicable escheat or
abandoned or unclaimed property law) be discharged from such trust; and the
Holder of such Security shall thereafter, as an unsecured general creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in a newspaper
published in the English language, customarily published on each Business Day
and of general circulation in the Borough of Manhattan, the City of New York,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the
Company.
Section 10.4. Statement as to Compliance.
The Company shall deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company ending after the date hereof, an Officers'
Certificate executed by the principal executive officer, principal financial
officer or principal accounting officer of the Company covering the preceding
calendar year, stating whether or not to the best knowledge of the signers
thereof the Company is in default in the performance, observance or fulfillment
of or compliance with any of the terms, provisions, covenants and conditions of
this Indenture, and if the Company shall be in default, specifying all such
defaults and the nature and status thereof of which they may have knowledge. For
the purpose of this Section 10.4, compliance shall be determined without regard
to any grace period (other than an Extension Period) or requirement of notice
provided pursuant to the terms of this Indenture.
Section 10.5. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any covenant
or condition provided pursuant to Section 3.1, 9.1(3) or 9.1(4) with respect to
the Securities of any series, if before or after the time for such compliance
the Holders of at least a majority in principal amount of the Outstanding
Securities of such series shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company in respect of any such covenant
or condition shall remain in full force and effect.
Section 10.6. Additional Sums.
In the case of the Securities of a series issued to a USF&G Trust, so long as
no Event of Default has occurred and is continuing and except as otherwise
specified as contemplated by Section 2.1 or Section 3.1, in the event that (i) a
USF&G Trust is the Holder of all of the Outstanding Securities of such series
and (ii) a Tax Event in respect of such USF&G Trust shall have occurred and be
continuing, the Company shall pay to such USF&G Trust (and its permitted
successors or assigns under the related Trust Agreement) as Holder of the
Securities of such series for so long as such USF&G Trust (or its permitted
successor or assignee) is the registered holder of any Securities of such
series, such additional sums as may be necessary in order that the amount of
Distributions (including any Additional Amounts (as defined in such Trust
Agreement)) paid by such USF&G Trust on the related Capital Securities and
Common Securities that at any time remain outstanding in accordance with the
terms thereof shall not be reduced as a result of any Additional Taxes (the
"Additional Sums"). Whenever in this Indenture or the Securities there is a
reference in any context to the payment of principal of or interest on the
Securities, such mention shall be deemed to include mention of the payments of
the Additional Sums provided for in this paragraph to the extent that, in such
context, Additional Sums are, were or would be payable in respect thereof
pursuant to the provisions of this paragraph and express mention of the payment
of Additional Sums (if applicable) in any provisions hereof shall not be
construed as excluding Additional Sums in those provisions hereof where such
express mention is not made.
Section 10.7. Additional Covenants.
The Company covenants and agrees with each Holder of Securities of each
series that it shall not, and it shall not permit any Subsidiary of the Company
to, (a) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock, or (b) make any payment of principal of or interest or premium,
if any, on or repay, repurchase or redeem any debt securities of the Company
(including other Securities) that rank pari passu in all respects with or junior
in interest to the Securities of such series or (c) make any guarantee payments
with respect to any guarantee by the Company of debt securities of any
subsidiary of the Company if such guarantee ranks pari passu with or junior in
interest to the Securities (other than (i) payments with securities junior in
interest to the Security, (ii) any declaration of a dividend in connection with
the implementation of a Rights Plan, the issuance of any Common Stock of any
class or series of preferred stock of the Company under any Rights Plan in the
future or the redemption or repurchase of any such rights pursuant thereto,
(iii) payments under any USF&G Guarantee, (iv) purchases of Common Stock related
to the issuance of Common Stock or rights under any of the Company's benefit
plans for its directors, officers or employees, (v) payments made on any series
of Securities upon the stated maturity of such Securities and (vi) payments of
accrued dividends (and cash in lieu of fractional shares) upon conversion into
common stock of any convertible preferred stock of the Company of any series now
or hereinafter outstanding, in accordance with the terms of such stock), if at
such time (i) there shall have occurred any event of which the Company has
actual knowledge that (A) with the giving of notice or the lapse of time, or
both, would constitute an Event of Default with respect to the Securities of
such series and (B) in respect of which the Company shall not have taken
reasonable steps to cure, (ii) if the Securities of such series are held by a
USF&G Trust, the Company shall be in default with respect to its payment of any
obligations under the USF&G Guarantee relating to the Capital Securities issued
by such USF&G Trust or (iii) the Company shall have given notice of its election
to begin an Extension Period with respect to the Securities of such series as
provided herein and shall not have rescinded such notice, or such Extension
Period, or any extension thereof, shall be continuing. For purposes hereof, the
Company's Senior Debt shall not be deemed to be pari passu with the Securities.
The Company also covenants with each Holder of Securities of a series issued
to a USF&G Trust (i) to maintain directly or indirectly 100% ownership of the
Common Securities of such USF&G Trust; provided, however, that any permitted
successor of the Company hereunder may succeed to the Company's ownership of
such Common Securities, (ii) as holder of the Common Securities not to
voluntarily terminate, wind-up or liquidate such USF&G Trust, except (a) in
connection with a distribution of the Securities of such series to the holders
of Capital Securities in liquidation of such USF&G Trust or (b) in connection
with certain mergers, consolidations or amalgamations permitted by the related
Trust Agreement and (iii) to use its reasonable efforts, consistent with the
terms and provisions of such Trust Agreement, to cause such USF&G Trust to
remain classified as a grantor trust and not as an association taxable as a
corporation for United States federal income tax purposes.
Section 10.8. Original Issue Discount.
On or before December 15 of each year during which any Securities are
outstanding, the Company shall furnish to each Paying Agent such information as
may be reasonably requested by each Paying Agent in order that each Paying Agent
may prepare the information which it is required to report for such year on
Internal Revenue Service Forms 1096 and 1099 pursuant to Section 6049 of the
Internal Revenue Code of 1986, as amended. Such information shall include the
amount of original issue discount includible in income for each $1,000 of
principal amount at Stated Maturity of outstanding Securities during such year.
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1. Applicability of This Article.
Redemption of Securities of any series (whether by operation of a sinking
fund or otherwise) as permitted or required by any form of Security issued
pursuant to this Indenture shall be made in accordance with such form of
Security and this Article; provided, however, that if any provision of any such
form of Security shall conflict with any provision of this Article, the
provision of such form of Security shall govern. Except as otherwise set forth
in the form of Security for such series, each Security of such series shall be
subject to partial redemption only in the amount of $1,000 or integral multiples
thereof and the principal amount of the unredeemed portion of such Security is
not less than $100,000.
Section 11.2. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by or
pursuant to a Board Resolution. In case of any redemption at the election of the
Company of any of the Securities of any particular series and having the same
terms, the Company shall, not less than 45 nor more than 60 days prior to the
Redemption Date (unless a shorter notice shall be satisfactory to the Trustee),
notify the Trustee and, in the case of Securities of a series held by a USF&G
Trust, the related Property Trustee of such date and of the principal amount of
Securities of that series to be redeemed and provide the additional information
required to be included in the notice or notices contemplated by Section 11.4.
In the case of any redemption of Securities prior to the expiration of any
restriction on such redemption provided in the terms of such Securities, the
Company shall furnish the Trustee with an Officers' Certificate and an Opinion
of Counsel evidencing compliance with such restriction. The Company shall have
received the prior approval of the Federal Reserve if then required under
applicable capital guidelines or policies of the Federal Reserve prior to
redeeming any Securities pursuant hereto.
Section 11.3. Selection of Securities to be Redeemed.
If less than all the Securities of any series are to be redeemed, the
particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series not previously called for redemption, by such method as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of a portion of the principal amount of any Security of such series.
If less than all the Securities of such series and of a specified tenor are to
be redeemed (unless such redemption affects only a single Security), the
particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series and specified tenor not previously called for redemption in
accordance with the preceding sentence.
The Trustee shall promptly notify the Company in writing of the Securities
selected for partial redemption and the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires, all
provisions relating to the redemption of Securities shall relate, in the case of
any Security redeemed or to be redeemed only in part, to the portion of the
principal amount of such Security which has been or is to be redeemed. If the
Company shall so direct, Securities registered in the name of the Company, any
Affiliate or any Subsidiary thereof shall not be included in the Securities
selected for redemption.
Section 11.4. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not later than the thirtieth day, and not earlier than the sixtieth day,
prior to the Redemption Date, to each Holder of Securities to be redeemed, at
the address of such Holder as it appears in the Securities Register.
With respect to Securities of each series to be redeemed, each notice of
redemption shall identify the Securities to be redeemed (including CUSIP
numbers) and shall state:
(a) the Redemption Date;
(b) the Redemption Price or if the Redemption Price cannot be calculated
prior to the time the notice is required to be sent, the estimate of the
Redemption Price provided pursuant to the Indenture together with a statement
that it is an estimate and that the actual Redemption Price will be calculated
on the third Business Day prior to the Redemption Date (if such an estimate of
the Redemption Price is given, a subsequent notice shall be given as set forth
above setting forth the Redemption Price promptly following the calculation
thereof);
(c) if less than all Outstanding Securities of such particular series and
having the same terms are to be redeemed, the identification (and, in the case
of partial redemption, the respective principal amounts) of the particular
Securities to be redeemed;
(d) that on the Redemption Date, the Redemption Price will become due and
payable upon each such Security or portion thereof, and that interest thereon,
if any, shall cease to accrue on and after said date;
(e) the place or places where such Securities are to be surrendered for
payment of the Redemption Price;
(f) that the redemption is for a sinking fund, if such is the case; and
(g) such other provisions as may be required in respect of the terms of a
particular series of Securities.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company and shall not be
irrevocable. The notice if mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the Holder
receives such notice. In any case, a failure to give such notice by mail or any
defect in the notice to the Holder of any Security designated for redemption as
a whole or in part shall not affect the validity of the proceedings for the
redemption of any other Security.
Section 11.5. Deposit of Redemption Price.
Prior to 10:00 a.m. New York City time on the Redemption Date specified in
the notice of redemption given as provided in Section 11.4, the Company will
deposit with the Trustee or with one or more Paying Agents (or if the Company is
acting as its own Paying Agent, the Company will segregate and hold in trust as
provided in Section 10.3) an amount of money sufficient to pay the Redemption
Price of, and any accrued interest (including Additional Interest) on, all the
Securities which are to be redeemed on that date.
Section 11.6. Payment of Securities Called for Redemption.
If any notice of redemption has been given as provided in Section 11.4, the
Securities or portion of Securities with respect to which such notice has been
given shall become due and payable on the date and at the place or places stated
in such notice at the applicable Redemption Price, together with accrued
interest (including any Additional Interest) to the Redemption Date. On
presentation and surrender of such Securities at a Place of Payment in said
notice specified, the said securities or the specified portions thereof shall be
paid and redeemed by the Company at the applicable Redemption Price, together
with accrued interest (including any Additional Interest) to the Redemption
Date; provided, however, that, unless otherwise specified as contemplated by
Section 3.1, installments of interest whose Stated Maturity is on or prior to
the Redemption Date will be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
relevant record dates according to their terms and the provisions of Section
3.7.
Upon presentation of any Security redeemed in part only, the Company shall
execute and the Trustee shall authenticate and deliver to the Holder thereof, at
the expense of the Company, a new Security or Securities of the same series, of
authorized denominations, in aggregate principal amount equal to the unredeemed
portion of the Security so presented and having the same Original Issue Date,
Stated Maturity and terms. If a Global Security is so surrendered, such new
Security (subject to Section 3.5) will also be a new Global Security.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal of and premium, if any, on such Security
shall, until paid, bear interest from the Redemption Date at the rate prescribed
therefor in the Security.
Section 11.7. Right of Redemption or Changes in Stated Maturity of
Securities Initially Issued to a USF&G Trust.
In the case of the Securities of a series initially issued to a USF&G Trust,
if specified as contemplated by Section 3.1, the Company, at its option, may
redeem such Securities upon the occurrence and during the continuation of a Tax
Event, within 90 days following the occurrence of such Tax Event in respect of
such USF&G Trust, in whole (but not in part), in each case at a Redemption Price
specified as contemplated by Section 3.1. In addition, if such Tax Event relates
to the deductibility of interest payable by the Company, and the opinion
referred to in the definition of Tax Event states that the risk of
non-deductibility would be avoided if the Maturity of the Securities were
shortened, the Company shall have the right to change the Maturity of the
Securities to the date stated in such opinion to be the minimum change required
to avoid such risk, but, in no event, may the Company shorten the Maturity to a
Stated Maturity of less than 19 1/2 years from the date of original issuance. In
the event the Company exercises this option (i) written notice of such election
must be provided to the Property Trustee and Debenture Trustee within the 90-day
period after the occurrence of the Tax Event and (ii) the Company no longer will
have the right to redeem the Debentures prior to their Stated Maturity.
ARTICLE XII
SINKING FUNDS
Section 12.1. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund for
the retirement of Securities of any series except as otherwise specified as
contemplated by Section 3.1 for such Securities.
The minimum amount of any sinking fund payment provided for by the terms of
any Securities of any series is herein referred to as a "mandatory sinking fund
payment," and any sinking fund payment in excess of such minimum amount which is
permitted to be made by the terms of such Securities of any series is herein
referred to as an "optional sinking fund payment." If provided for by the terms
of any Securities of any series, the cash amount of any sinking fund payment may
be subject to reduction as provided in Section 12.2. Each sinking fund payment
shall be applied to the redemption (or purchase by tender or otherwise) of
Securities of any series as provided for by the terms of such Securities.
Section 12.2. Satisfaction of Sinking Fund Payments with Securities.
In lieu of making all or any part of a mandatory sinking fund payment with
respect to any Securities of a series in cash, the Company may at its option, at
any time no more than 16 months and no less than 45 days prior to the date on
which such sinking fund payment is due, deliver to the Trustee Securities of
such series (together with the unmatured coupons, if any, appertaining thereto)
theretofore purchased or otherwise acquired by the Company, except Securities of
such series that have been redeemed through the application of mandatory or
optional sinking fund payments pursuant to the terms of the Securities of such
series, accompanied by a Company Order instructing the Trustee to credit such
obligations and stating that the Securities of such series were originally
issued by the Company by way of bona fide sale or other negotiation for value;
provided that the Securities to be so credited have not been previously so
credited. The Securities to be so credited shall be received and credited for
such purpose by the Trustee at the redemption price for such Securities, as
specified in the Securities so to be redeemed, for redemption through operation
of the sinking fund and the amount of such sinking fund payment shall be reduced
accordingly.
Section 12.3. Redemption of Securities for Sinking Fund.
Not less than 45 days prior to each sinking fund payment date for any series
of Securities, the Company will deliver to the Trustee an Officers' Certificate
specifying the amount of the next ensuing sinking fund payment for such
Securities pursuant to the terms of such Securities, the portion thereof, if
any, which is to be satisfied by payment of cash in the currency in which the
Securities of such series are payable (except as provided pursuant to Section
3.1) and the portion thereof, if any, which is to be satisfied by delivering and
crediting Securities pursuant to Section 12.2 and will also deliver to the
Trustee any Securities to be so delivered. Such Officers' Certificate shall be
irrevocable and upon its delivery the Company shall be obligated to make the
cash payment or payments therein referred to, if any, on or before the
succeeding sinking fund payment date. In the case of the failure of the Company
to deliver such Officers' Certificate (or, as required by this Indenture, the
Securities and coupons, if any, specified in such Officers' Certificate) by the
due date therefor, the sinking fund payment due on the succeeding sinking fund
payment date for such series shall be paid entirely in cash and shall be
sufficient to redeem the principal amount of the Securities of such series
subject to a mandatory sinking fund payment without the right to deliver or
credit securities as provided in Section 12.2 and without the right to make the
optional sinking fund payment with respect to such series at such time.
Any sinking fund payment or payments (mandatory or optional) made in cash
plus any unused balance of any preceding sinking fund payments made with respect
to the Securities of any particular series shall be applied by the Trustee (or
by the Company if the Company is acting as its own Paying Agent) on the sinking
fund payment date on which such payment is made (or, if such payment is made
before a sinking fund payment date, on the sinking fund payment date immediately
following the date of such payment) to the redemption of Securities of such
series at the Redemption Price specified in such Securities with respect to the
sinking fund. Any sinking fund moneys not so applied or allocated by the Trustee
(or, if the Company is acting as its own Paying Agent, segregated and held in
trust by the Company as provided in Section 10.3) for such series and together
with such payment (or such amount so segregated) shall be applied in accordance
with the provisions of this Section 12.3. Any and all sinking fund moneys with
respect to the Securities of any particular series held by the Trustee (or if
the Company is acting as its own Paying Agent, segregated and held in trust as
provided in Section 10.3) on the last sinking fund payment date with respect to
Securities of such series and not held for the payment or redemption of
particular Securities of such series shall be applied by the Trustee (or by the
Company if the Company is acting as its own Paying Agent), together with other
moneys, if necessary, to be deposited (or segregated) sufficient for the
purpose, to the payment of the principal of the Securities of such series at
Maturity. The Trustee shall select the Securities to be redeemed upon such
sinking fund payment date in the manner specified in Section 11.3 and cause
notice of the redemption thereof to be given in the name of and at the expense
of the Company in the manner provided in Section 11.4. Such notice having been
duly given, the redemption of such Securities shall be made upon the terms and
in the manner stated in Section 11.6. On or before each sinking fund payment
date, the Company shall pay to the Trustee (or, if the Company is acting as its
own Paying Agent, the Company shall segregate and hold in trust as provided in
Section 10.3) in cash a sum in the currency in which Securities of such series
are payable (except as provided pursuant to Section 3.1) equal to the principal,
premium, if any, and any interest accrued to the Redemption Date for Securities
or portions thereof to be redeemed on such sinking fund payment date pursuant to
this Section 12.3.
Neither the Trustee nor the Company shall redeem any Securities of a series
with sinking fund moneys or mail any notice of redemption of Securities of such
series by operation of the sinking fund for such series during the continuance
of a default in payment of interest, if any, on any Securities of such series or
of any Event of Default (other than an Event of Default occurring as a
consequence of this paragraph) with respect to the Securities of such series,
except that if the notice of redemption shall have been provided in accordance
with the provisions hereof, the Trustee (or the Company, if the Company is then
acting as its own Paying Agent) shall redeem such Securities if cash sufficient
for that purpose shall be deposited with the Trustee (or segregated by the
Company) for that purpose in accordance with the terms of this Article XII.
Except as aforesaid, any moneys in the sinking fund for such series at the time
when any such default or Event of Default shall occur and any moneys thereafter
paid into such sinking fund shall, during the continuance of such default or
Event of Default, be held as security for the payment of the Securities and
coupons, if any, of such series; provided, however, that in case such default or
Event of Default shall have been cured or waived herein, such moneys shall
thereafter be applied on the next sinking fund payment date for the Securities
of such series on which such moneys may be applied pursuant to the provisions of
this Section 12.3.
ARTICLE XIII
SUBORDINATION OF SECURITIES
Section 13.1. Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article, the payment of the principal
of (and premium, if any) and interest (including any Additional Interest) on
each and all of the Securities are hereby expressly made subordinate and subject
in right of payment to the prior payment in full of all amounts then due and
payable in respect of all Senior Indebtedness.
Section 13.2. Payment Over of Proceeds Upon Dissolution, Etc.
In the event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, arrangement, reorganization, debt restructuring or
other similar case or proceeding in connection therewith, relative to the
Company, or its creditors as such, or to its assets, or (b) any liquidation,
dissolution or other winding up of the Company, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any assignment for
the benefit of creditors or any other marshaling of assets and liabilities of
the Company, then and in any such event specified in (a), (b) or (c) above (each
such event, if any, herein sometimes referred to as a "Proceeding") the holders
of Senior Indebtedness shall be entitled to receive payment in full of all
amounts due or to become due on or in respect of all Senior Indebtedness, or
provision shall be made for such payment in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of Senior Indebtedness, before
the Holders of the Securities are entitled to receive any payment or
distribution of any kind or character, whether in cash, property or securities
(including any payment or distribution which may be payable or deliverable by
reason of the payment of any other Indebtedness of the Company subordinated to
the payment of the Securities, such payment or distribution being hereinafter
referred to as "Junior Subordinated Payment"), on account of principal of (or
premium, if any) or interest on the Securities or on account of the purchase or
other acquisition of Securities by the Company or any Subsidiary and to that end
the holders of Senior Indebtedness shall be entitled to receive, for application
to the payment thereof, any payment or distribution of any kind or character,
whether in cash, property or securities, including any Junior Subordinated
Payment, which may be payable or deliverable in respect of the Securities in any
such Proceeding. In the event that, notwithstanding the foregoing provisions of
this Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, including any Junior Subordinated
Payment, before all Senior Indebtedness is paid in full or payment thereof is
provided for in cash or cash equivalents or otherwise in a manner satisfactory
to the holders of Senior Indebtedness, and if such fact shall, at or prior to
the time of such payment or distribution, have been made known to the Trustee
or, as the case may be, such Holder, then and in such event such payment or
distribution shall be paid over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other
Person making payment or distribution of assets of the Company for application
to the payment of all Senior Indebtedness remaining unpaid, to the extent
necessary to pay all Senior Indebtedness in full, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Indebtedness.
Any taxes that have been withheld or deducted from any payment or distribution
in respect of the Securities, or any taxes that ought to have been withheld or
deducted from any such payment or distribution that have been remitted to the
relevant taxing authority, shall not be considered to be an amount that the
Trustee or the Holder of any Security receives for purposes of this Section. For
purposes of this Article only, the words "any payment or distribution of any
kind or character, whether in cash, property or securities" shall not be deemed
to include shares of stock of the Company as reorganized or readjusted, or
securities of the Company or any other corporation provided for by a plan of
reorganization or readjustment which securities are subordinated in right of
payment to all then outstanding Senior Indebtedness to substantially the same
extent as the Securities are so subordinated as provided in this Article. The
consolidation of the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution of the Company following the sale of
all or substantially all of its properties and assets as an entirety to another
Person or the liquidation or dissolution of the Company following the sale of
all or substantially all of its properties and assets as an entirety to another
Person upon the terms and conditions set forth in Article Eight shall not be
deemed a Proceeding for the purposes of this Section if the Person formed by
such consolidation or into which the Company is merged or the Person which
acquires by sale such properties and assets as an entirety, as the case may be,
shall, as a part of such consolidation, merger, or sale comply with the
conditions set forth in Article Eight.
Section 13.3. Prior Payment to Senior Indebtedness Upon Acceleration of
Securities.
In the event that any Securities are declared due and payable before their
Stated Maturity, then and in such event the holders of the Senior Indebtedness
outstanding at the time such Securities so become due and payable shall be
entitled to receive payment in full of all amounts due on or in respect of such
Senior Indebtedness, or provision shall be made for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, before the Holders of the Securities are entitled to receive any
payment (including any payment which may be payable by reason of the payment of
any other indebtedness of the Company being subordinated to the payment of the
Securities) by the Company on account of the principal of (or premium, if any)
or interest on the Securities or on account of the purchase or other acquisition
of Securities by the Company or any Subsidiary; provided, however, that nothing
in this Section shall prevent the satisfaction of any sinking fund payment in
accordance with Article Twelve by delivering and crediting pursuant to Section
12.2 Securities which have been acquired (upon redemption or otherwise) prior to
such declaration of acceleration. In the event that, notwithstanding the
foregoing, the Company shall make any payment to the Trustee or the Holder of
any Security prohibited by the foregoing provisions of this Section, and if such
fact shall, at or prior to the time of such payment, have been made known to the
Trustee or, as the case may be, such Holder, then and in such event such payment
shall be paid over and delivered forthwith to the Company. The provisions of
this Section shall not apply to any payment with respect to which Section 13.2
would be applicable.
Section 13.4. No Payment When Senior Indebtedness in Default.
(a) In the event and during the continuation of any default in the payment
of principal of (or premium, if any) or interest or any other payment on any
Senior Indebtedness, or in the event that any event of default with respect to
any Senior Indebtedness shall have occurred and be continuing and shall have
resulted in such Senior Indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise have become due and payable,
unless and until such event of default shall have been cured or waived or shall
have ceased to exist and such acceleration shall have been rescinded or
annulled, or (b) in the event any judicial proceeding shall be pending with
respect to any such default in payment or such event of default, then no payment
(including any payment which may be payable by reason of the payment of any
other indebtedness of the Company being subordinated to the payment of the
Securities) shall be made by the Company on account of principal of (or premium,
if any) or interest on the Securities or on account of the purchase or other
acquisition of Securities by the Company or any Subsidiary; provided, however,
that nothing in this Section shall prevent the satisfaction of any sinking fund
payment in accordance with Article Twelve by delivering and crediting pursuant
to Section 12.2 Securities which have been acquired (upon redemption or
otherwise) prior to such default in payment or event of default or which have
been converted pursuant to Article Twelve. In the event that, notwithstanding
the foregoing, the Company shall make any payment to the Trustee or the Holder
of any Security prohibited by the foregoing provisions of this Section, and if
such fact shall, at or prior to the time of such payment, have been made known
to the Trustee or, as the case may be, such Holder, then and in such event such
payment shall be paid over and delivered forthwith to the Company. The
provisions of this Section shall not apply to any payment with respect to which
Section 13.2 would be applicable.
Section 13.5. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture, or in any
of the Securities, shall prevent (a) the Company at any time, except during the
conditions described in the first paragraph of Section 13.2 or the pendency of
any Proceeding referred to in Section 13.2 or under the conditions described in
Sections 13.3 and 13.4, from making payments at any time of principal of (and
premium, if any) or interest (including Additional Interest) on the Securities,
or (b) the application by the Trustee of any moneys deposited with it hereunder
to the payment of or on account of the principal of (and premium, if any) or
interest (including any Additional Interest) on the Securities or the retention
of such payment by the Holders, if, at the time of such application by the
Trustee, it did not have knowledge that such payment would have been prohibited
by the provisions of this Article.
Section 13.6. Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness, or the provision
for such payment in cash or cash equivalents or otherwise in a manner
satisfactory to the holders of Senior Indebtedness, the Holders of the
Securities shall be subrogated to the extent of the payments or distributions
made to the holders of such Senior Indebtedness pursuant to the provisions of
this Article (equally and ratably with the holders of all indebtedness of the
Company which by its express terms is subordinated to Senior Indebtedness of the
Company to substantially the same extent as the Securities are subordinated to
the Senior Indebtedness and is entitled to like rights of subrogation by reason
of any payments or distributions made to holders of such Senior Indebtedness) to
the rights of the holders of such Senior Indebtedness to receive payments and
distributions of cash, property and securities applicable to the Senior
Indebtedness until the principal of (and premium, if any) and interest on the
Securities shall be paid in full. Such assignment shall not be effective until
such time as all Senior Indebtedness has been paid in full or payment thereof
provided for. For purposes of such subrogation or assignment, no payments or
distributions to the holders of the Senior Indebtedness of any cash, property or
securities to which the Holders of the Securities or the Trustee would be
entitled except for the provisions of this Article, and no payments over
pursuant to the provisions of this Article to the holders of Senior Indebtedness
by Holders of the Securities or the Trustee, shall, as among the Company, its
creditors other than holders of Senior Indebtedness, and the Holders of the
Securities, be deemed to be a payment or distribution by the Company to or on
account of the Senior Indebtedness.
Section 13.7. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the purpose of
defining the relative rights of the Holders of the Securities on the one hand
and the holders of Senior Indebtedness on the other hand. Nothing contained in
this Article or elsewhere in this Indenture or in the Securities is intended to
or shall (a) impair, as between the Company, its creditors other than Holders of
Senior Indebtedness and the Holders of the Securities, the obligations of the
Company, which are absolute and unconditional (and which, subject to the rights
under this Article of the holders of Senior Indebtedness are intended to rank
equally with all other general unsecured obligations of the Company), to pay to
the Holders of the Securities the principal of (and premium, if any) and
interest (including any Additional Interest) on the Securities as and when the
same shall become due and payable in accordance with their terms; or (b) affect
the relative rights against the Company of the Holders of the Securities and
creditors of the Company other than the holders of Senior Indebtedness; or (c)
prevent the Trustee or the Holder of any Security from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture
including, without limitation, filing and voting claims in any Proceeding,
subject to the rights, if any, under this Article of the holders of Senior
Indebtedness to receive cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder.
Section 13.8. Trustee to Effectuate Subordination.
Each Holder of a Security by his or her acceptance thereof authorizes and
directs the Trustee on his or her behalf to take such action as may be necessary
or appropriate to acknowledge or effectuate the subordination provided in this
Article and appoints the Trustee his or her attorney-in-fact for any and all
such purposes.
Section 13.9. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by (i) any amendment of or addition or supplement to any
Senior Indebtedness or any instrument or agreement relating thereto (unless
otherwise expressly provided therein) or (ii) any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by the Company with the terms, provisions and
covenants of this Indenture, regardless of any knowledge thereof that any such
holder may have or be otherwise charged with.
Without in any way limiting the generality of the immediately preceding
paragraph, the holders of Senior Indebtedness may, at any time and from to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (i) change the manner,
place or terms of payment or extend the time of payment of, or renew or alter or
increase, Senior Indebtedness, or otherwise amend or supplement in any manner
Senior Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
Section 13.10. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any fact known
to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Securities. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Indebtedness or from any trustee, agent or
representative therefor; and, prior to the receipt of any such written notice,
the Trustee, subject to the provisions of Section 6.1, shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section at least
two Business Days prior to the date upon which by the terms hereof any monies
may become payable for any purpose (including, without limitation, the payment
of the principal of (and premium, if any) or interest (including any Additional
Interest) on any Security), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive such
monies and to apply the same to the purpose for which the monies were received
and shall not be affected by any notice to the contrary which may be received by
it within two Business Days prior to such date.
Subject to the provisions of Section 6.1, the Trustee shall be entitled to
rely on the delivery to it of a written notice by a Person representing himself
or herself to be a holder of Senior Indebtedness (or a trustee, agent or
representative therefor) to establish that such notice has been given by a
holder of Senior Indebtedness (or a trustee or attorney-in-fact therefor). In
the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article, and if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
Section 13.11. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets of the Company referred to in this
Article, the Trustee, subject to the provisions of Section 6.1, and the Holders
of the Securities shall be entitled to rely upon any order or decree entered by
any court of competent jurisdiction in which such Proceeding is pending, or a
certificate of the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of creditors, agent or other Person making
such payment or distribution, delivered to the Trustee or to the Holders of
Securities, for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article.
Section 13.12. Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee, in its capacity as trustee under this Indenture, shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall
not be liable to any such holders if it shall in good faith mistakenly pay over
or distribute to Holders of Securities or to the Company or to any other Person
cash, property or securities to which any holders of Senior Indebtedness shall
be entitled by virtue of this Article or otherwise. With respect to the holders
of Senior Indebtedness, the Trustee undertakes to perform or to observe only
such of its covenants or obligations as are specifically set forth in this
Article and no implied covenants or obligations with respect to holders of
Senior Indebtedness shall be read into this Indenture against the Trustee.
Section 13.13. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article with respect to any Senior Indebtedness which may at
any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. Nothing in this Article shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 6.7.
Section 13.14. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article shall in such case (unless the context otherwise requires)
be construed as extending to and including such Paying Agent within its meaning
as fully for all intents and purposes as if such Paying Agent were named in this
Article in addition to or in place of the Trustee.
* * * *
This instrument may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly
executed, all as of the day and year first above written.
USF&G CORPORATION
By: /s/ Dan L. Hale
Dan L. Hale
Executive Vice President,
Chief Financial Officer
Attest: /s/ John F. Hoffen, Jr.
John F. Hoffen, Jr., Secretary
THE BANK OF NEW YORK
as Trustee
By: Byron Merino
ANNEX D -- Form of Restricted Securities Certificate
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to ss. 3.6(b) of the Indenture)
[-------------------------],
as Security Registrar
[address]
Re: ____________ of USF&G Capital I (the "Trust") (the "Securities")
Reference is made to the Indenture, dated as of December ___, 1996
(the "Indenture"), entered into between USF&G Corporation, and The Bank of New
York, as Trustee. Terms used herein and defined in the Indenture or in
Regulation S, Rule 144A or Rule 144 under the U.S. Securities Act of 1933 (the
"Securities Act") are used herein as so defined.
This certificate relates to $_____________ aggregate principal amount
of Securities, which are evidenced by the following certificate(s) (the
"Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
CURRENTLY IN BOOK-ENTRY FORM: Yes ___ No ___ (check one)
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through a Depository or an Agent Member in the name of the Undersigned, as or on
behalf of the Owner. If the Specified Securities are not represented by a Global
Security, they are registered in the name of the Undersigned, as or on behalf of
the Owner.
The Owner has requested that the Specified Securities be transferred
to a person (the "Transferee") who will take delivery in the form of a
Restricted Security. In connection with such transfer, the Owner hereby
certifies that, unless such transfer is being effected pursuant to an effective
registration statement under the Securities Act, it is being effected in
accordance with Rule 144A, Rule 904 of Regulation S or Rule 144 under the
Securities Act and all applicable securities laws of the states of the United
States and other jurisdictions. Accordingly, the Owner hereby further certifies
as:
(1) Rule 144A Transfers. If the transfer is being effected in
accordance with Rule 144A:
(A) the Specified Securities are being transferred to a person
that the Owner and any person acting on its behalf reasonably
believe is a "qualified institutional buyer" within the meaning
of Rule 144A, acquiring for its own account or for the account of
a qualified institutional buyer; and
(B) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the
Owner may be relying on Rule 144A in connection with the
transfer; and
(2) Rule 904 Transfers. If the transfer is being effected in
accordance with Rule 904:
(A) the Owner is not a distributor of the Securities, an
affiliate of the Company or any such distributor or a person
acting in behalf of any of the foregoing;
(B) the offer of the Specified Securities was not made to a
person in the United States;
(C) either;
(i) at the time the buy order was originated, the Transferee
was outside the United States or the Owner and any person acting
on its behalf reasonably believed that the Transferee was outside
the United States, or
(ii) the transaction is being executed in, on or through the
facilities of the Eurobond market, as regulated by the
Association of International Bond Dealers, or another designated
offshore securities market and neither the Owner nor any person
acting on its behalf knows that the transaction has been
prearranged with a buyer in the United States;
(D) no directed selling efforts have been made in the United
States by or on behalf of the Owner or any affiliate thereof; and
(E) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities act.
(3) Rule 144 Transfers. If the transfer is being effected pursuant
to Rule 144:
(A) the transfer is occurring after a holding period of at least
two years (computed in accordance with paragraph (d) of Rule
144) has elapsed since the date the Specified Securities were
acquired from the Company or from an affiliate (as such term is
defined in Rule 144) of the Company, whichever is later, and is
being effected in accordance with the applicable amount, manner
of sale and notice requirements of paragraphs (e), (f) and (h) of
Rule 144; or
(B) the transfer is occurring after a holding period of at least
three years has elapsed since the date the Specified Securities
were acquired from the Company or from an affiliate (as such term
is defined in Rule 144) of the Company, whichever is later, and
the Owner is not, and during the preceding three months has not
been, an affiliate of the Company.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and the Initial Purchasers (as
defined in the related Trust Agreement).
Dated: (Print the name of the Undersigned, as
such term is defined in the second
paragraph of this certificate.)
By:
Name:
Title:
(If the Undersigned is a corporation,
partnership or fiduciary, the title of
the person signing on behalf of the
Undersigned must be stated.)
ANNEX E -- Form of Unrestricted Securities Certificate
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Restricted Capital Securities Legends pursuant to
ss. 3.6(c) of the Indenture)
[-------------------------],
as Security Registrar
[address]
Re: ____________ of USF&G Capital I (the "Trust") (the "Securities")
Reference is made to the Indenture, dated as of December ____, 1996
(the "Indenture"), between USF&G Corporation and The Bank of New York, as
Trustee. Terms used herein and defined in the Indenture or in Rule 144 under the
U.S. Securities Act of 1933 (the "Securities Act") are used herein as so
defined.
This certificate relates to $_____________ aggregate principal amount
of Securities, which are evidenced by the following certificate(s) (the
"Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
CURRENTLY IN BOOK-ENTRY FORM: Yes ___ No ___ (check one)
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through the Depository or an Agent Member in the name of the Undersigned, as or
on behalf of the Owner. If the Specified Securities are not represented by a
Global Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be exchanged
for Securities bearing no Restricted Securities Legend pursuant to Section
3.6(c) of the Indenture. In connection with such exchange, the Owner hereby
certifies that the exchange is occurring after a period of at least three years
has elapsed since the date the Specified Securities were acquired from the
Company or from an affiliate (as such term is defined in Rule 144) of the
Company, whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the Company. The Owner also
acknowledges that any future transfers of the Specified Securities must comply
with all applicable securities laws of the states of the United States and other
jurisdictions.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and the Initial Purchasers (as
defined in the related Trust Agreement).
Dated: (Print the name of the Undersigned, as
such term is defined in the second
paragraph of this certificate.)
By:
Name:
Title:
(If the Undersigned is a corporation,
partnership or fiduciary, the title of
the person signing on behalf of the
Undersigned must be stated.)
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions. 1
Section 1.2. Compliance Certificate and Opinions. 11
Section 1.3. Forms of Documents Delivered to Trustee. 11
Section 1.4. Acts of Holders. 12
Section 1.5. Notices, Etc. to Trustee and Company. 14
Section 1.6. Notice to Holders; Waiver. 14
Section 1.7. Conflict with Trust Indenture Act. 15
Section 1.8. Effect of Headings and Table of Contents. 15
Section 1.9. Successors and Assigns. 15
Section 1.10. Separability Clause. 15
Section 1.11. Benefits of Indenture. 16
Section 1.12. Governing Law. 16
Section 1.13. Non-Business Days. 16
ARTICLE II
SECURITY FORMS
Section 2.1. Forms Generally. 16
Section 2.2. Form of Face of Security. 17
Section 2.3. Form of Reverse of Security. 21
Section 2.4. Additional Provisions Required in Global Security. 23
Section 2.5. Form of Trustee's Certificate of Authentication. 24
ARTICLE III
THE SECURITIES
Section 3.1. Title and Terms. 24
Section 3.2. Denominations. 27
Section 3.3. Execution, Authentication, Delivery and Dating. 27
Section 3.4. Temporary Securities. 29
Section 3.5. Global Securities. 29
Section 3.6. Registration, Transfer and Exchange Generally,
Certain Transfers and Exchanges; Securities Act
Legends. 30
Section 3.7. Mutilated, Destroyed, Lost and Stolen Securities. 33
Section 3.8. Payment of Interest; Interest Rights Preserved. 34
Section 3.9. Persons Deemed Owners. 36
Section 3.10. Cancellation. 36
Section 3.11. Computation of Interest. 36
Section 3.12. Deferrals of Interest Payment Dates. 37
Section 3.13. Right of Set-Off. 38
Section 3.14. Agreed Tax Treatment. 38
Section 3.15. CUSIP Numbers. 38
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.1. Satisfaction and Discharge of Indenture. 39
Section 4.2. Application of Trust Money. 40
ARTICLE V
REMEDIES
Section 5.1. Events of Default. 40
Section 5.2. Acceleration of Maturity; Rescission and Annulment. 41
Section 5.3. Collection of Indebtedness and Suits for
Enforcement by Trustee. 42
Section 5.4. Trustee May File Proofs of Claim. 43
Section 5.5. Trustee May Enforce Claim Without Possession
of Securities. 44
Section 5.6. Application of Money Collected. 44
Section 5.7. Limitation on Suits. 45
Section 5.8. Unconditional Right of Holders to Receive
Principal, Premium and Interest; Direct Action
by Holders of Capital Securities. 45
Section 5.9. Restoration of Rights and Remedies. 46
Section 5.10. Rights and Remedies Cumulative. 46
Section 5.11. Delay or Omission Not Waiver. 46
Section 5.12. Control by Holders. 47
Section 5.13. Waiver of Past Defaults. 47
Section 5.14. Undertaking for Costs. 48
Section 5.15. Waiver of Usury, Stay or Extension Laws. 48
ARTICLE VI
THE TRUSTEE
Section 6.1. Certain Duties and Responsibilities. 49
Section 6.2. Notice of Defaults. 50
Section 6.3. Certain Rights of Trustee. 50
Section 6.4. Not Responsible for Recitals or Issuance
of Securities. 51
Section 6.5. May Hold Securities. 52
Section 6.6. Money Held in Trust. 52
Section 6.7. Compensation and Reimbursement. 52
Section 6.8. Disqualification; Conflicting Interests. 53
Section 6.9. Corporate Trustee Required; Eligibility. 53
Section 6.10. Resignation and Removal; Appointment of Successor. 54
Section 6.11. Acceptance of Appointment by Successor. 55
Section 6.12. Merger, Conversion, Consolidation or
Succession to Business. 56
Section 6.13. Preferential Collection of Claims Against Company. 57
Section 6.14. Appointment of Authenticating Agent. 57
ARTICLE VII
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1. Company to Furnish Trustee Names and Addresses
of Holders. 59
Section 7.2. Preservation of Information, Communications
to Holders. 59
Section 7.3. Reports by Trustee. 59
Section 7.4. Reports by Company. 60
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1. Company May Consolidate, Etc., Only on
Certain Terms. 60
Section 8.2. Successor Corporation Substituted. 61
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures without Consent of Holders. 62
Section 9.2. Supplemental Indentures with Consent of Holders 63
Section 9.3. Execution of Supplemental Indentures 65
Section 9.4. Effect of Supplemental Indentures. 65
Section 9.5. Conformity with Trust Indenture Act. 65
Section 9.6. Reference in Securities to Supplemental Indentures. 65
ARTICLE X
COVENANTS
Section 10.1. Payment of Principal, Premium and Interest. 66
Section 10.2. Maintenance of Office or Agency. 66
Section 10.3. Money for Security Payments to be Held in Trust. 66
Section 10.4. Statement as to Compliance. 68
Section 10.5. Waiver of Certain Covenants. 68
Section 10.6. Additional Sums. 68
Section 10.7. Additional Covenants. 69
Section 10.8. Original Issue Discount. 70
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1. Applicability of This Article. 70
Section 11.2. Election to Redeem; Notice to Trustee. 71
Section 11.3. Selection of Securities to be Redeemed. 71
Section 11.4. Notice of Redemption. 71
Section 11.5. Deposit of Redemption Price. 73
Section 11.6. Payment of Securities Called for Redemption. 73
Section 11.7. Right of Redemption of Securities or Changes
in Stated Maturity of Securities Initially
Issued to a USF&G Trust. 73
ARTICLE XII
SINKING FUNDS
Section 12.1. Applicability of Article. 74
Section 12.2. Satisfaction of Sinking Fund Payments
with Securities. 74
Section 12.3. Redemption of Securities for Sinking Fund. 75
ARTICLE XIII
SUBORDINATION OF SECURITIES
Section 13.1. Securities Subordinate to Senior Indebtedness. 76
Section 13.2. Payment Over of Proceeds Upon Dissolution, Etc 77
Section 13.3. Prior Payment to Senior Indebtedness Upon
Acceleration of Securities. 78
Section 13.4. No Payment When Senior Indebtedness in Default. 79
Section 13.5. Payment Permitted If No Default 79
Section 13.6. Subrogation to Rights of Holders of Senior
Indebtedness 80
Section 13.7. Provisions Solely to Define Relative Rights. 80
Section 13.8. Trustee to Effectuate Subordination. 81
Section 13.9. No Waiver of Subordination Provisions. 81
Section 13.10. Notice to Trustee. 81
Section 13.11. Reliance on Judicial Order or Certificate of
Liquidating Agent. 82
Section 13.12. Trustee Not Fiduciary for Holders of Senior
Indebtedness. 82
Section 13.13. Rights of Trustee as Holder of Senior
Indebtedness; Preservation of Trustee's Rights. 83
Section 13.14. Article Applicable to Paying Agents. 83
ANNEX A - Form of Trust Agreement
ANNEX B - Form of Amended and Restated Trust Agreement
ANNEX C - Form of Guarantee Agreement
ANNEX D - Form of Restricted Securities Certificate
ANNEX E - Form of Unrestricted Securities Certificate
<PAGE>
GUARANTEE AGREEMENT
Between
USF&G CORPORATION
(as Guarantor)
and
THE BANK OF NEW YORK
(as Trustee)
dated as of
December 24, 1996
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS 1
Section 1.1. Definitions 1
ARTICLE II. TRUST INDENTURE ACT 3
Section 2.1. Trust Indenture Act; Application 3
Section 2.2. List of Holders 3
Section 2.3. Reports by the Guarantee Trustee 4
Section 2.4. Periodic Reports to the Guarantee Trustee 4
Section 2.5. Evidence of Compliance with Conditions Precedent 4
Section 2.6. Events of Default; Waiver 4
Section 2.7. Event of Default; Notice 4
Section 2.8. Conflicting Interests 5
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE 5
Section 3.1. Powers and Duties of the Guarantee Trustee 5
Section 3.2. Certain Rights of Guarantee Trustee 6
Section 3.3. Compensation; Indemnity; Fees 7
ARTICLE IV. GUARANTEE TRUSTEE 8
Section 4.1. Guarantee Trustee: Eligibility 8
Section 4.2. Appointment, Removal and Resignation of
the Guarantee Trustee 8
ARTICLE V. GUARANTEE 9
Section 5.1. Guarantee 9
Section 5.2. Waiver of Notice and Demand 9
Section 5.3. Obligations Not Affected 9
Section 5.4. Rights of Holders 10
Section 5.5. Guarantee of Payment 10
Section 5.6. Subrogation 10
Section 5.7. Independent Obligations 11
ARTICLE VI. COVENANTS AND SUBORDINATION 11
Section 6.1. Subordination 11
Section 6.2. Pari Passu Guarantees 11
ARTICLE VII. TERMINATION 11
Section 7.1. Termination 11
ARTICLE VIII. MISCELLANEOUS 12
Section 8.1. Successors and Assigns 12
Section 8.2. Amendments 12
Section 8.3. Notices 12
Section 8.4. Benefit 13
Section 8.5. Interpretation 13
Section 8.6. Governing Law 13
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT, dated as of December ___, 1996, is executed and
delivered by USF&G CORPORATION, a Maryland corporation (the "Guarantor") having
its principal office at 100 Light Street, Baltimore, Maryland 21201, and THE
BANK OF NEW YORK, a New York banking corporation, as trustee (the "Guarantee
Trustee"), for the benefit of the Holders (as defined herein) from time to time
of the Capital Securities (as defined herein) of USF&G Capital A, a Delaware
statutory business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Trust Agreement, dated as of
December ___, 1996 (the "Trust Agreement"), among the Guarantor, as Depositor,
the Property Trustee and the Delaware Trustee named therein and the Holders from
time to time of undivided beneficial interests in the assets of the Issuer, the
Issuer is issuing $100,000,000 aggregate Liquidation Amount (as defined in the
Trust Agreement) of its ______% Capital Securities, Series A, Liquidation Amount
$1,000 per capital security) (the "Capital Securities") representing preferred
undivided beneficial interests in the assets of the Issuer and having the terms
set forth in the Trust Agreement;
WHEREAS, the Capital Securities will be issued by the Issuer and the
proceeds thereof, together with the proceeds from the issuance of the Issuer's
Common Securities (as defined below), will be used to purchase the Debentures
(as defined in the Trust Agreement) of the Guarantor which will be deposited
with The Bank of New York, as Property Trustee under the Trust Agreement, as
trust assets; and
WHEREAS, as incentive for the Holders to purchase Capital Securities, the
Guarantor desires irrevocably and unconditionally to agree, to the extent set
forth herein, to pay to the Holders of the Capital Securities the Guarantee
Payments (as defined herein) and to make certain other payments on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of Capital
Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the
benefit of the Holders from time to time of the Capital Securities.
ARTICLE I. DEFINITIONS
Section 1.1. Definitions
As used in this Guarantee Agreement, the terms set forth below shall,
unless the context otherwise requires, have the following meanings. Capitalized
or otherwise defined terms used but not otherwise defined herein shall have the
meanings assigned to such terms in the Trust Agreement as in effect on the date
hereof.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person; provided, however, that an Affiliate of the
Guarantor shall not be deemed to be an Affiliate of the Issuer. For the purposes
of this definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Board of Directors" means either the board of directors of the Guarantor
or any committee of that board duly authorized to act hereunder.
"Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Issuer.
"Event of Default" means a default by the Guarantor on any of its payment
or other obligations under this Guarantee Agreement; provided, however, that,
except with respect to a default in payment of any Guarantee Payments, the
Guarantor shall have received notice of default and shall not have cured such
default within 60 days after receipt of such notice.
"Guarantee Payments" means the following payments or distributions, without
duplication, with respect to the Capital Securities, to the extent not paid or
made by or on behalf of the Issuer: (i) any accrued and unpaid Distributions (as
defined in the Trust Agreement) required to be paid on the Capital Securities,
to the extent the Issuer shall have funds on hand available therefor at such
time; (ii) the redemption price, including all accrued and unpaid Distributions
to the date of redemption (the "Redemption Price"), with respect to any Capital
Securities called for redemption by the Issuer, to the extent the Issuer shall
have funds on hand available therefor at such time; and (iii) upon a voluntary
or involuntary termination, winding-up or liquidation of the Issuer, unless
Debentures are distributed to the Holders, the lesser of (a) the aggregate of
the Liquidation Amount of $1,000 per Capital Security plus accrued and unpaid
Distributions on the Capital Securities to the date of payment (the "Liquidation
Distribution") and (b) the amount of assets of the Issuer remaining available
for distribution to Holders on liquidation of the Issuer.
"Guarantee Trustee" means The Bank of New York, until a Successor
Guarantee Trustee has been appointed and has accepted such appointment pursuant
to the terms of this Guarantee Agreement, and thereafter means each such
Successor Guarantee Trustee.
"Holder" means any holder, as registered on the books and records of the
Issuer, of any Capital Securities; provided, however, that in determining
whether the holders of the requisite percentage of Capital Securities have given
any request, notice, consent or waiver hereunder, "Holder" shall not include the
Guarantor, the Guarantee Trustee, or any Affiliate of the Guarantor or the
Guarantee Trustee.
"Indenture" means the Junior Subordinated Indenture dated as of December
____, 1996, as supplemented and amended between the Guarantor and The Bank of
New York, as trustee.
"List of Holders" has the meaning specified in Section 2.2(a).
"Majority in Liquidation Amount of the Securities" means, except as
provided by the Trust Indenture Act, a vote by the Holder(s), voting separately
as a class, of more than 50% of the Liquidation Amount of all then outstanding
Capital Securities issued by the Issuer.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chairman or a Vice Chairman of the Board of Directors of such
Person or the President or a Vice President of such Person, and by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of
such Person, and delivered to the Guarantee Trustee. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Guarantee Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each officer, such
condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Responsible Officer" means, when used with respect to the Guarantee
Trustee, any officer assigned to the Corporate Trust Office, including any
managing director, vice president, assistant vice president, assistant
treasurer, assistant secretary or any other officer of the Guarantee Trustee
customarily performing functions similar to those performed by any of the above
designated officers, and also, with respect to a particular matter, any other
officer, to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject.
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
ARTICLE II. TRUST INDENTURE ACT
Section 2.1. Trust Indenture Act; Application.
(a) The Trust Indenture Act shall apply as a matter of contract to this
Trust Agreement for purposes of interpretation, construction and defining the
rights and obligations hereunder.
(b) If and to the extent that any provision of this Guarantee Agreement
limits, qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
Section 2.2. List of Holders.
(a) The Guarantor shall furnish or cause to be furnished to the Guarantee
Trustee (a) semi-annually, on or before June 30 and December 31 of each year, a
list, in such form as the Guarantee Trustee may reasonably require, of the names
and addresses of the Holders ("List of Holders") as of a date not more than 15
days prior to the delivery thereof, and (b) at such other times as the Guarantee
Trustee may request in writing, within 30 days after the receipt by the
Guarantor of any such request, a List of Holders as of a date not more than 15
days prior to the time such list is furnished, in each case to the extent such
information is in the possession or control of the Guarantor and is not
identical to a previously supplied list of Holders or has not otherwise been
received by the Guarantee Trustee in its capacity as such. The Guarantee Trustee
may destroy any List of Holders previously given to it on receipt of a new List
of Holders.
(b) The Guarantee Trustee shall comply with its obligations under Section
311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act.
Section 2.3. Reports by the Guarantee Trustee.
Not later than 60 days after December 31 of each year, commencing 60 days
after December 31, 1996, the Guarantee Trustee shall provide to the Holders such
reports as are required by Section 313 of the Trust Indenture Act, if any, in
the form and in the manner provided by Section 313 of the Trust Indenture Act.
The Guarantee Trustee shall also comply with the requirements of Section 313(d)
of the Trust Indenture Act.
Section 2.4. Periodic Reports to the Guarantee Trustee.
The Guarantor shall provide to the Guarantee Trustee, the Securities and
Exchange Commission and the Holders such documents, reports and information, if
any, as required by Section 314 of the Trust Indenture Act and the compliance
certificate required by Section 314 of the Trust Indenture Act, in the form, in
the manner and at the times required by Section 314 of the Trust Indenture Act.
Section 2.5. Evidence of Compliance with Conditions Precedent.
The Guarantor shall provide to the Guarantee Trustee such evidence of
compliance with such conditions precedent, if any, provided for in this
Guarantee Agreement that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer pursuant to Section 314(c)(1) may be given in the form of an
Officers' Certificate.
Section 2.6. Events of Default; Waiver.
The Holders of a Majority in Liquidation Amount of the Capital Securities
may, by vote, on behalf of the Holders, waive any past Event of Default and its
consequences. Upon such waiver, any such Event of Default shall cease to exist,
and any Event of Default arising therefrom shall be deemed to have been cured,
for every purpose of this Guarantee Agreement, but no such waiver shall extend
to any subsequent or other default or Event of Default or impair any right
consequent therefrom.
Section 2.7. Event of Default; Notice.
(a) The Guarantee Trustee shall, within 90 days after the occurrence of an
Event of Default, transmit by mail, first class postage prepaid, to the Holders,
notices of all Events of Default known to the Guarantee Trustee, unless such
Events of Default have been cured before the giving of such notice, provided,
that, except in the case of a default in the payment of a Guarantee Payment, the
Guarantee Trustee shall be protected in withholding such notice if and so long
as the Board of Directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Guarantee Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders.
(b) The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default unless a Responsible Officer charged with the administration of
this Guarantee Agreement shall have obtained written notice of such Event of
Default.
Section 2.8. Conflicting Interests.
The Trust Agreement shall be deemed to be specifically described in this
Guarantee Agreement for the purposes of clause (i) of the first proviso
contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
Section 3.1. Powers and Duties of the Guarantee Trustee.
(a) This Guarantee Agreement shall be held by the Guarantee Trustee for the
benefit of the Holders, and the Guarantee Trustee shall not transfer this
Guarantee Agreement to any Person except a Holder exercising his or her rights
pursuant to Section 5.4(iv) or to a Successor Guarantee Trustee on acceptance by
such Successor Guarantee Trustee of its appointment to act as Successor
Guarantee Trustee. The right, title and interest of the Guarantee Trustee shall
automatically vest in any Successor Guarantee Trustee upon acceptance by such
Successor Guarantee Trustee of its appointment hereunder, and such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered pursuant to the appointment of such Successor
Guarantee Trustee.
(b) If an Event of Default has occurred and is continuing, the Guarantee
Trustee shall enforce this Guarantee Agreement for the benefit of the Holders.
(c) The Guarantee Trustee, before the occurrence of any Event of Default
and after the curing of all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Guarantee Agreement, and no implied covenants shall be read into this Guarantee
Agreement against the Guarantee Trustee. In case an Event of Default has
occurred (that has not been cured or waived pursuant to Section 2.6), the
Guarantee Trustee shall exercise such of the rights and powers vested in it by
this Guarantee Agreement, and use the same degree of care and skill in its
exercise thereof, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(d) No provision of this Guarantee Agreement shall be construed to relieve
the Guarantee Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Guarantee Trustee shall be
determined solely by the express provisions of this Guarantee
Agreement, and the Guarantee Trustee shall not be liable except for
the performance of such duties and obligations as are specifically
set forth in this Guarantee Agreement; and
(B) in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Guarantee
Trustee and conforming to the requirements of this Guarantee
Agreement; but in the case of any such certificates or opinions that
by any provision hereof or of the Trust Indenture Act are
specifically required to be furnished to the Guarantee Trustee, the
Guarantee Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this
Guarantee Agreement;
(ii) the Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee
Trustee, unless it shall be proved that the Guarantee Trustee was
negligent in ascertaining the pertinent facts upon which such judgment
was made;
(iii) the Guarantee Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than a
majority in Liquidation Amount of the Capital Securities relating to
the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee, or exercising any trust or power
conferred upon the Guarantee Trustee under this Guarantee Agreement;
and
(iv) no provision of this Guarantee Agreement shall require the
Guarantee Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties
or in the exercise of any of its rights or powers, if the Guarantee
Trustee shall have reasonable grounds for believing that the repayment
of such funds or liability is not assured to it under the terms of
this Guarantee Agreement or indemnity satisfactory to it against such
risk or liability is not assured to it.
Section 3.2. Certain Rights of Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) The Guarantee Trustee may conclusively rely and shall be
fully protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document reasonably
believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by this
Guarantee Agreement shall be sufficiently evidenced by an Officers'
Certificate unless otherwise prescribed herein.
(iii) Whenever, in the administration of this Guarantee
Agreement, the Guarantee Trustee shall deem it desirable that a matter
be proved or established before taking, suffering or omitting to take
any action hereunder, the Guarantee Trustee (unless other evidence is
herein specifically prescribed) may, in the absence of bad faith on
its part, request and conclusively rely upon an Officers' Certificate.
(iv) The Guarantee Trustee may consult with legal counsel of its
selection, and the advice or opinion of such legal counsel with
respect to legal matters shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted to be
taken by it hereunder in good faith and in accordance with such advice
or opinion. Such legal counsel may be legal counsel to the Guarantor
or any of its Affiliates and may be one of its employees. The
Guarantee Trustee shall have the right at any time to seek
instructions concerning the administration of this Guarantee Agreement
from any court of competent jurisdiction.
(v) The Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Guarantee
Agreement at the request or direction of any Holder, unless such
Holder shall have provided to the Guarantee Trustee such security and
indemnity satisfactory to it, against the costs, expenses (including
attorneys' fees and expenses) and liabilities that might be incurred
by it in complying with such request or direction, including such
reasonable advances as may be requested by the Guarantee Trustee;
provided that, nothing contained in this Section 3.2(a)(v) shall be
taken to relieve the Guarantee Trustee, upon the occurrence of an
Event of Default, of its obligation to exercise the rights and powers
vested in it by this Guarantee Agreement.
(vi) The Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Guarantee Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit.
(vii) The Guarantee Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through its agents or attorneys, and the Guarantee Trustee shall
not be responsible for any misconduct or negligence on the part of any
such agent or attorney appointed with due care by it hereunder.
(viii) Whenever in the administration of this Guarantee Agreement
the Guarantee Trustee shall deem it desirable to receive instructions
with respect to enforcing any remedy or right or taking any other
action hereunder, the Guarantee Trustee (A) may request and shall be
entitled to receive instructions from the Holders, (B) may refrain
from enforcing such remedy or right or taking such other action until
such instructions are received, and (C) shall be fully protected in
acting in accordance with such instructions.
(ix) The Trustee shall not be under any obligation to take any
action that is discretionary under the provisions of this Guarantee.
(x) The Trustee shall not be charged with knowledge of any Event
of Default unless either (i) a Responsible Officer of the Trustee
shall have actual knowledge thereof or (2) the Trustee shall have
received notice thereof in accordance with Section 2.7 hereof from the
Company or a Holder.
(xi) No permissive power or authority available to the Trustee
shall be construed as a duty.
(b) No provision of this Guarantee Agreement shall be deemed to impose any
duty or obligation on the Guarantee Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it in
any jurisdiction in which it shall be illegal, or in which the Guarantee
Trustee shall be unqualified or incompetent in accordance with applicable law,
to perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Guarantee
Trustee shall be construed to be a duty to act in accordance with such power
and authority.
Section 3.3. Compensation; Indemnity; Fees.
The Guarantor agrees:
(a) to pay to the Guarantee Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which compensation shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Guarantee Trustee upon request for all reasonable expenses, disbursements and
advances incurred or made by the Guarantee Trustee in accordance with any
provision of this Guarantee Agreement (including the reasonable compensation and
the expenses and disbursements of its agents and counsel), except any such
expense, disbursement or advance as may be attributable to its negligence or bad
faith; and
(c) to indemnify the Guarantee Trustee and its directors, officers, agents
and employees for, and to hold it harmless against, any and all loss, liability,
claim, damage or expense (including reasonable compensation and the expenses and
disbursements of its agents and counsel) incurred without negligence or bad
faith on the part of the Guarantee Trustee, arising out of or in connection with
the acceptance or administration of this Guarantee Agreement, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder. The Guarantee Trustee will not claim or exact any lien or charge on
any Guarantee Payments as a result of any amount due to it under this Guarantee
Agreement.
The provisions of this Section 3.3 shall survive the termination of this
Guarantee Agreement or the earlier resignation or removal of the Guarantee
Trustee.
To secure the Company's payment obligations in this Section, the Company
and the Holders agree that the Trustee shall have a lien prior to the Guarantee
on all money or properly held or collected by the Trustee. Such lien shall
survive the satisfaction and discharge of this Guarantee.
When the Trustee incurs expense or renders services after an Event of
Default specified in Section 5.1(4) or (5) of the Indenture occurs, the expenses
and the compensation for the services are intended to constitute expenses of
administration under the Bankruptcy Reform Act of 1978 or any successor statute.
ARTICLE IV. GUARANTEE TRUSTEE
Section 4.1. Guarantee Trustee: Eligibility.
(a) There shall at all times be a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a Person that is eligible pursuant to the Trust Indenture Act
to act as such and has a combined capital and surplus of at least $50,000,000,
and shall be a corporation meeting the requirements of Section 310(a) of the
Trust Indenture Act. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the supervising or examining
authority, then, for the purposes of this Section and to the extent permitted by
the Trust Indenture Act, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published.
(b) If at any time the Guarantee Trustee shall cease to be eligible to so
act under Section 4.1(a), the Guarantee Trustee shall immediately resign in the
manner and with the effect set out in Section 4.2(c).
(c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee and Guarantor shall in all respects comply with the provisions
of Section 310(b) of the Trust Indenture Act.
Section 4.2. Appointment, Removal and Resignation of the Guarantee
Trustee.
(a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed or
removed without cause at any time by the action of the Holders of a majority of
the outstanding Capital Securities.
(b) The Guarantee Trustee shall not be removed until a Successor Guarantee
Trustee has been appointed and has accepted such appointment by written
instrument executed by such Successor Guarantee Trustee and delivered to the
Guarantor.
(c) The Guarantee Trustee appointed hereunder shall hold office until a
Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.
(d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within 30 days after
delivery of an instrument of resignation or removal, the Guarantee Trustee
resigning or being removed may petition, at the expense of the Guarantor, any
court of competent jurisdiction for appointment of a Successor Guarantee
Trustee. Such court may thereupon, after prescribing such notice, if any, as it
may deem proper, appoint a Successor Guarantee Trustee.
ARTICLE V. GUARANTEE
Section 5.1. Guarantee.
The Guarantor irrevocably and unconditionally agrees to pay in full to the
Holders the Guarantee Payments (without duplication of amounts theretofore paid
by or on behalf of the Issuer), as and when due, regardless of any defense,
right of set-off or counterclaim which the Issuer may have or assert other than
the defense of payment. The Guarantor's obligation to make a Guarantee Payment
may be satisfied by direct payment of the required amounts by the Guarantor to
the Holders or by causing the Issuer to pay such amounts to the Holders. The
Guarantor shall notify the Guarantee Trustee of any such payment.
Section 5.2. Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of the Guarantee
Agreement and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the
Guarantee Trustee, Issuer or any other Person before proceeding against the
Guarantor, protest, notice of nonpayment, notice of dishonor, notice of
redemption and all other notices and demands.
Section 5.3. Obligations Not Affected.
The obligations, covenants, agreements and duties of the Guarantor under
this Guarantee Agreement shall in no way be affected or impaired by reason of
the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Capital Securities to be performed
or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions (other than an extension of time for payment of
Distributions that results from the extension of any interest payment period on
the Debentures as provided in the Indenture), Redemption Price, Liquidation
Distribution or any other sums payable under the terms of the Capital Securities
or the extension of time for the performance of any other obligation under,
arising out of, or in connection with, the Capital Securities;
(c) any failure, omission, delay or lack of diligence on the part of the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Capital Securities, or any
action on the part of the Issuer granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer or any of the assets of the
Issuer;
(e) any invalidity of, or defect or deficiency in, the Capital Securities;
(f) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain
the consent of, the Guarantor with respect to the happening of any of the
foregoing.
Section 5.4. Rights of Holders.
The Guarantor expressly acknowledges that: (i) this Guarantee Agreement
will be deposited with the Guarantee Trustee to be held for the benefit of the
Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee
Agreement on behalf of the Holders; (iii) the Holders of a majority in
Liquidation Amount of the Capital Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of this Guarantee Agreement or exercising any trust
or power conferred upon the Guarantee Trustee under this Guarantee Agreement;
and (iv) any Holder may institute a legal proceeding directly against the
Guarantor to enforce its rights under this Guarantee Agreement, without first
instituting a legal proceeding against the Issuer or any other Person.
Section 5.5. Guarantee of Payment.
This Guarantee Agreement creates a guarantee of payment and not of
collection. This Guarantee Agreement will not be discharged except by payment of
the Guarantee Payments in full (without duplication of amounts theretofore paid
by the Issuer) or upon distribution of Debentures to Holders as provided in the
Trust Agreement.
Section 5.6. Subrogation.
The Guarantor shall be subrogated to all (if any) rights of the Holders
against the Issuer in respect of any amounts paid to the Holders by the
Guarantor under this Guarantee Agreement and shall have the right to waive
payment by the Issuer pursuant to Section 5.1; provided, however, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any rights which it may acquire by way
of subrogation or any indemnity, reimbursement or other agreement, in all cases
as a result of payment under this Guarantee Agreement, if, at the time of any
such payment, any amounts are due and unpaid under this Guarantee Agreement. If
any amount shall be paid to the Guarantor in violation of the preceding
sentence, the Guarantor agrees to hold such amount in trust for the Holders and
to pay over such amount to the Holders.
Section 5.7. Independent Obligations.
The Guarantor acknowledges that its obligations hereunder are independent
of the obligations of the Issuer with respect to the Capital Securities and that
the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Guarantee Agreement
notwithstanding the occurrence of any event referred to in subsections (a)
through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI. COVENANTS AND SUBORDINATION
Section 6.1. Subordination.
The obligations of the Guarantor under this Guarantee Agreement will
constitute unsecured obligations of the Guarantor and will rank subordinate and
junior in right of payment to all Senior Indebtedness (as defined in the
Indenture) to the extent and in the manner set forth in the Indenture. The
obligations of the Guarantor under this Guarantee Agreement do not constitute
Senior Indebtedness or Senior Debt (each as defined in the Indenture).
Section 6.2. Pari Passu Guarantees.
The obligations of the Guarantor under this Guarantee Agreement shall rank
pari passu with the obligations of the Guarantor under any similar Guarantee
Agreements issued by the Guarantor on behalf of the holders of preferred or
capital securities issued by any USF&G Trust (as defined in the Indenture).
ARTICLE VII. TERMINATION
Section 7.1. Termination.
This Guarantee Agreement shall terminate and be of no further force and
effect upon (i) full payment of the Redemption Price of all Capital Securities,
(ii) the distribution of Debentures to the Holders in exchange for all of the
Capital Securities or (iii) full payment of the amounts payable in accordance
with the Trust Agreement upon liquidation of the Issuer. Notwithstanding the
foregoing, this Guarantee Agreement will continue to be effective or will be
reinstated, as the case may be, if at any time any Holder must repay any sums
paid with respect to Capital Securities or this Guarantee Agreement.
ARTICLE VIII. MISCELLANEOUS
Section 8.1. Successors and Assigns.
All guarantees and agreements contained in this Guarantee Agreement shall
bind the successors, assigns, receivers, trustees and representatives of the
Guarantor and shall inure to the benefit of the Holders of the Capital
Securities then outstanding. Except in connection with a consolidation, merger
or sale involving the Guarantor that is permitted under Article VIII of the
Indenture and pursuant to which the successor or assignee agrees in writing to
perform the Guarantor's obligations hereunder, the Guarantor shall not assign
its obligations hereunder.
Section 8.2. Amendments.
Except with respect to any changes which do not adversely affect the
rights of the Holders in any material respect (in which case no consent of the
Holders will be required), this Guarantee Agreement may only be amended with the
prior approval of the Holders of not less than a Majority in Liquidation Amount
of all the outstanding Capital Securities. The provisions of Article VI of the
Trust Agreement concerning meetings of the Holders shall apply to the giving of
such approval.
Section 8.3. Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, telecopied (confirmed by delivery of the original) or
mailed by first class mail as follows:
(a) if given to the Guarantor, to the address set forth below or such
other address, facsimile number or to the attention of such other Person as the
Guarantor may give notice to the Holders:
USF&G Corporation
100 Light Street
Baltimore, Maryland 21202
Facsimile No.: (410) 547-3000
Attention: Treasurer
(b) if given to the Guarantee Trustee or the Issuer, in care of the
Guarantee Trustee, at the Issuer's (and the Guarantee Trustee's) address set
forth below or such other address as the Guarantee Trustee on behalf of the
Issuer may give notice to the Holders:
USF&G Capital A
c/o USF&G Corporation
100 Light Street
Baltimore, Maryland 21201
Facsimile No.: (410) 547-3000
Attention: Treasurer
and:
The Bank of New York
101 Barclay Street, Floor 21W
New York, New York 10286
Facsimile No.:(212) 815-5915
Attention: Corporate Trust Trustee Administration
Guarantee Trustee
The Bank of New York
101 Barclay Street, Floor 21W
New York, New York 10286
Facsimile No.: (212) 815-5915
Attention: Corporate Trust Trustee Administration
(c) if given to any Holder, at the address set forth on the books and
records of the Issuer.
All notices hereunder shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
Section 8.4. Benefit.
This Guarantee Agreement is solely for the benefit of the Holders and is
not separately transferable from the Capital Securities.
Section 8.5. Interpretation.
In this Guarantee Agreement, unless the context otherwise requires:
(a) capitalized terms used in this Guarantee Agreement but not defined in
the preamble hereto have the respective meanings assigned to them in Section
1.1;
(b) a term defined anywhere in this Guarantee Agreement has
the same meaning throughout;
(c) all references to "the Guarantee Agreement" or "this Guarantee
Agreement" are to this Guarantee Agreement as modified, supplemented or amended
from time to time;
(d) all references in this Guarantee Agreement to Articles and Sections
are to Articles and Sections of this Guarantee Agreement unless otherwise
specified;
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Guarantee Agreement unless otherwise defined in this Guarantee
Agreement or unless the context otherwise requires;
(f) a reference to the singular includes the plural and vice versa; and
(g) the masculine, feminine or neuter genders used herein shall include
the masculine, feminine and neuter genders.
Section 8.6. Governing Law.
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
THIS GUARANTEE AGREEMENT is executed as of the day and year first above
written.
USF&G Corporation
as Guarantor
By: /s/ Dan L. Hale
Name: Dan L. Hale
Title: Executive Vice President,
Chief Financial Officer
THE BANK OF NEW YORK
as Guarantee Trustee
By: /s/ Byron Merino
Name: Byron Merino
Title: Assistant Treasurer
<PAGE>
GLOBAL CAPITAL SECURITIES CERTIFICATE
[FACE OF CERTIFICATE]
THIS SECURITY IS A GLOBAL CAPITAL SECURITY CERTIFICATE WITHIN THE MEANING
OF THE TRUST AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF
THE DEPOSITORY TRUST COMPANY (THE "DEPOSITORY") OR A NOMINEE OF THE DEPOSITORY.
THE CAPITAL SECURITIES REPRESENTED HEREBY ARE EXCHANGEABLE IN WHOLE OR IN PART
FOR CAPITAL SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
TRUST AGREEMENT AND NO TRANSFER OF THE CAPITAL SECURITIES REPRESENTED HEREBY
(OTHER THAN A TRANSFER OF SUCH CAPITAL SECURITIES AS A WHOLE BY THE DEPOSITORY
TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE
DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN
SUCH LIMITED CIRCUMSTANCES.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUST OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE CAPITAL SECURITIES EVIDENCED HEREBY AND ANY JUNIOR SUBORDINATED
DEBENTURES ISSUABLE IN CONNECTION THEREWITH HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE
INITIAL PURCHASERS (I) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN
OFFSHORE TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (B) BY SUBSEQUENT INVESTORS AS SET FORTH IN (A) ABOVE AND, IN
ADDITION, TO AN INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN REGULATION D
UNDER THE SECURITIES ACT) IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS OF THE UNITED
STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION
PROVIDED BY RULE 144 FOR RESALES OF THE CAPITAL SECURITIES OR THE JUNIOR
SUBORDINATED DEBENTURES.
THE CAPITAL SECURITIES EVIDENCED HEREBY MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED TO ANY PERSON UNLESS SUCH PERSON (A) IS NOT ITSELF, AND IS
NOT ACQUIRING CAPITAL SECURITIES WITH "PLAN ASSETS" OF, AN EMPLOYEE BENEFIT OR
OTHER PLAN SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE") (EACH, A "PLAN"), OR ANY ENTITY WHOSE UNDERLYING
ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY (A
"PLAN ASSET ENTITY") OR (B)(1) IS ITSELF, OR IS ACQUIRING CAPITAL SECURITIES
WITH THE ASSETS OF, AN "INVESTMENT FUND" (WITHIN THE MEANING OF PART V(B) OF
PTCE 84-14) MANAGED BY A "QUALIFIED PROFESSIONAL ASSET MANAGER" (WITHIN THE
MEANING OF PART V(A) OF PTCE 84-14 WHICH HAS MADE OR PROPERLY AUTHORIZED THE
DECISION FOR SUCH PLAN TO PURCHASE CAPITAL SECURITIES, UNDER CIRCUMSTANCES SUCH
THAT PTCE 84-14 IS APPLICABLE TO THE PURCHASE AND HOLDING OF SUCH CAPITAL
SECURITIES, (2) IS ITSELF, OR IS ACQUIRING CAPITAL SECURITIES WITH THE ASSETS
OF, A PLAN MANAGED BY AN "IN-HOUSE ASSET MANAGER" (WITHIN THE MEANING OF PART
IV(A) OF PTCE 96-23) WHICH HAS MADE OR PROPERLY AUTHORIZED THE DECISION FOR SUCH
PLAN TO PURCHASE CAPITAL SECURITIES, UNDER CIRCUMSTANCES SUCH THAT PTCE 96-23 IS
APPLICABLE TO THE PURCHASE AND HOLDING OF SUCH CAPITAL SECURITIES, (3) IS AN
INSURANCE COMPANY POOLED SEPARATE ACCOUNT PURCHASING CAPITAL SECURITIES PURSUANT
TO SECTION I OF PTCE 90-1 OR A BANK COLLECTIVE INVESTMENT FUND PURCHASING
CAPITAL SECURITIES PURSUANT TO SECTION I OF PTCE 91-38, AND IN EITHER CASE, NO
PLAN OWNS MORE THAN 10% OF THE ASSETS OF SUCH ACCOUNT OR COLLECTIVE FUND (WHEN
AGGREGATED WITH OTHER PLANS OF THE SAME EMPLOYER (OR ITS AFFILIATES) OR EMPLOYEE
ORGANIZATION) OR (4) IS AN INSURANCE COMPANY USING THE ASSETS OF ITS GENERAL
ACCOUNT TO PURCHASE THE CAPITAL SECURITIES PURSUANT TO SECTION I OF PTCE 95-60,
IN WHICH CASE THE RESERVES AND LIABILITIES FOR THE GENERAL ACCOUNT CONTRACTS
HELD BY OR ON BEHALF OF ANY PLAN, TOGETHER WITH ANY OTHER PLANS MAINTAINED BY
THE SAME EMPLOYER (OR ITS AFFILIATES) OR EMPLOYEE ORGANIZATION, DO NOT EXCEED
10% OF THE TOTAL RESERVES AND LIABILITIES OF THE INSURANCE COMPANY GENERAL
ACCOUNT (EXCLUSIVE OF SEPARATE ACCOUNT LIABILITIES), PLUS SURPLUS AS SET FORTH
IN THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS ANNUAL STATEMENT FILED
WITH THE STATE OF DOMICILE OF THE INSURER.
THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING
RESTRICTIONS.
THE CAPITAL SECURITIES EVIDENCED HEREBY MAY BE ISSUED AND TRANSFERRED ONLY
IN BLOCKS OF NOT LESS THAN 100 CAPITAL SECURITIES. ANY TRANSFER, SALE OR OTHER
DISPOSITION OF CAPITAL SECURITIES IN A BLOCK OF LESS THAN 100 CAPITAL SECURITIES
SHALL BE DEEMED VOID AND OF NO LEGAL EFFECT WHATSOEVER, ANY SUCH TRANSFEREE
SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH CAPITAL SECURITIES FOR ANY PURPOSE,
INCLUDING BUT NOT LIMITED TO THE RECEIPT OF DISTRIBUTIONS ON SUCH CAPITAL
SECURITIES, AND SUCH TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER
IN SUCH CAPITAL SECURITIES.
Certificate Number Number of Capital Securities
PG-
CUSIP NO.
Global Certificate Evidencing Capital Securities of
USF&G Capital I
8 1/2% Capital Securities, Series A
(liquidation amount $1,000 per Capital Security)
USF&G Capital I, a business trust created under the laws of the State of
Delaware (the "Trust"), hereby certifies that CEDE & CO. (the "Holder") is the
registered owner of one hundred thousand (100,000) capital securities of the
Trust representing an undivided beneficial interest in the assets of the Trust
and designated the USF&G Capital I 8 1/2% Capital Securities, Series A
(liquidation amount $1,000 per Capital Security) (the "Capital Securities"), or
such other amount (which, when taken together with all other outstanding Capital
Securities, shall not exceed 100,000 Capital Securities in the aggregate at any
time) as may be set forth in the records of the Securities Registrar. The
Capital Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer as provided in Section 5.4 of the Trust
Agreement (as defined below). The designations, rights, privileges,
restrictions, preferences and other terms and provisions of the Capital
Securities are set forth in, and this certificate and the Capital Securities
represented hereby are issued and shall in all respects be subject to the terms
and provisions of, the Amended and Restated Trust Agreement of the Trust dated
as of December 24, 1996, as the same may be amended from time to time (the
"Trust Agreement") including the designation of the terms of Capital Securities
as set forth therein. The Holder is entitled to the benefits of the Guarantee
Agreement entered into by USF&G Corporation, a Maryland corporation, and The
Bank of New York, as guarantee trustee, dated as of December 24, 1996 (the
"Guarantee"), to the extent provided therein. The Trust will furnish a copy of
the Trust Agreement and the Guarantee to the Holder without charge upon written
request to the Trust at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder,
This Certificate is not valid unless countersigned by the Securities
Registrar.
WITNESS the facsimile signature of a duly authorized Administrator of the
Trust.
Dated: December 24, 1996 USF&G CAPITAL I
By: /s/ J. Kendall Huber
Name: J. Kendall Huber
Title: Administrator
Countersigned: THE BANK OF NEW YORK
By: /s/ Byron Merino
Securities Registrar
<PAGE>
AGREEMENT AS TO EXPENSES AND LIABILITIES
Agreement dated as of December 24, 1996, between USF&G Corporation, a
Maryland corporation ("USF&G Corporation"), and USF&G Capital I, a Statutory
business trust formed under the Business Trust Act of the State of Delaware (the
"Trust").
Whereas, the Trust intends to issue its Common Securities (the "Common
Securities") to and receive Debentures from USF&G Corporation and to issue and
sell 8 1/2% Capital Securities, Series A (the "Capital Securities") with such
powers, preferences and special rights and restrictions as are set forth in the
Amended and Restated Trust Agreement of the Trust, dated as of December 24,
1996, as the same may be amended from time to time (the "Trust Agreement");
Whereas, USF&G Corporation will directly or indirectly own all of the
Common Securities of the Trust and will issue the Debentures;
Now, Therefore, in consideration of the purchase by each holder of the
Capital Securities, which purchase USF&G Corporation hereby agrees shall benefit
USF&G Corporation and which purchase USF&G Corporation acknowledges will be made
in reliance upon the execution and delivery of this Agreement, USF&G Corporation
and the Trust hereby agree as follows:
ARTICLE I
Section 1.1. Guarantee by USF&G Corporation.
Subject to the terms and conditions hereof, USF&G Corporation hereby
irrevocably and unconditionally guarantees to each person or entity to whom the
Trust is now or hereafter becomes indebted or liable (the "Beneficiaries") the
full payment, when and as due, of any and all Obligations (as hereinafter
defined) to such Beneficiaries. As used herein, "Obligations" means any costs,
expenses or liabilities of the Trust (including, without limitation, any tax
liability of the Trust), other than obligations of the Trust to pay to holders
of any Capital Securities or other similar interests in the Trust the amounts
due such holders pursuant to the terms of the Capital Securities or such other
similar interests, as the case may be. This Agreement is intended to be for the
benefit of, and to be enforceable by, all such Beneficiaries, whether or not
such Beneficiaries have received notice hereof.
Section 1.2. Term of Agreement.
This Agreement shall terminate and be of no further force and effect upon
the later of (a) the date on which full payment has been made of all amounts
payable to all holders of all the Capital Securities (whether upon redemption,
liquidation, exchange or otherwise) and (b) the date on which there are no
Beneficiaries remaining; provided, however, that this Agreement shall continue
to be effective or shall be reinstated, as the case may be, if at any time any
holder of Capital Securities or any Beneficiary must restore payment of any sums
paid under the Capital Securities, under any Obligation, under the Guarantee
Agreement dated the date hereof by USF&G Corporation and The Bank of New York,
as guarantee trustee or under this Agreement for any reason whatsoever. This
Agreement is continuing, irrevocable, unconditional and absolute.
Section 1.3. Waiver of Notice.
USF&G Corporation hereby waives notice of acceptance of this Agreement and
of any Obligation to which it applies or may apply, and USF&G Corporation hereby
waives presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
Section 1.4. No Impairment.
The obligations, covenants, agreements and duties of USF&G Corporation
under this Agreement shall in no way be affected or impaired by reason of the
happening from time to time of any of the following:
(a) the extension of time for the payment by the Trust of all or any
portion of the Obligations or for the performance of any other obligation under,
arising out of, or in connection with, the obligations;
(b) any failure, omission, delay or lack of diligence on the part of the
Beneficiaries to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Beneficiaries with respect to the Obligations or any
action on the part of the Trust granting indulgence or extension of any kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust.
There shall be no obligation of the Beneficiaries to give notice to, or
obtain the consent of, USF&G Corporation with respect to the happening of any of
the foregoing.
Section 1.5. Enforcement.
A Beneficiary may enforce this Agreement directly against USF&G Corporation
and USF&G Corporation waives any right or remedy to require that any action be
brought against the Trust or any other person or entity before proceeding
against USF&G Corporation.
Section 1.6. Subrogation.
USF&G Corporation shall be subrogated to all (if any) rights of the Trust
in respect of any amounts paid to the Beneficiaries by USF&G Corporation under
this Agreement; provided, however, that USF&G Corporation shall not (except to
the extent required by mandatory provisions of law) be entitled to enforce or
exercise any rights which it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of payment under this
Agreement, if, at the time of any such payment, any amounts are due and unpaid
under this Agreement.
ARTICLE II
Section 2.1. Binding Effect.
All guarantees and agreements contained in this Agreement shall bind the
successors, assigns, receivers, trustees and representatives of USF&G
Corporation and shall inure to the benefit of the Beneficiaries.
Section 2.2. Amendment.
So long as there remains any Beneficiary or any Capital Securities of any
series are outstanding, this Agreement shall not be modified or amended in any
manner adverse to such Beneficiary or to the holders of the Capital Securities.
Section 2.3. Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be given in writing by delivering the same against receipt
therefor by facsimile transmission (confirmed by mail), telex or by registered
or certified mail, addressed as follows (and if so given, shall be deemed given
when mailed or upon receipt of an answer-back, if sent by telex):
USF&G Capital I
c/o USF&G Corporation
100 Light Street
Baltimore, Maryland 21202
Attention: Treasurer
USF&G Corporation
100 Light Street
Baltimore, Maryland 21202
Facsimile No.: (410) 547-3000
Attention: Treasurer
Section 2.4. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.
This Agreement is executed as of the day and year first above written.
USF&G CORPORATION
By: /s/ Dan L. Hale
Name: Dan L. Hale
Title: Executive Vice President,
Chief Financial Officer
USF&G Capital I
By: /s/ J. Kendall Huber
Name: J. Kendall Huber
Title: Administrator
<PAGE>
USF&G Corporation
(Deferrable Interest Junior Subordinated Debenture)
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY.
THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY AN INVESTOR WHO WAS, PRIOR TO THE
DISTRIBUTION OF THIS SECURITY, HOLDING RELATED CAPITAL SECURITIES AS AN INITIAL
PURCHASER THEREOF (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE
TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR RULE 904 OF REGULATION
S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (4)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B)
BY SUBSEQUENT INVESTORS HOLDING THIS SECURITY IN BOOK-ENTRY FORM AS SET FORTH IN
(A) ABOVE AND, IN ADDITION, TO AN ACCREDITED INVESTOR (AS DEFINED IN REGULATION
D UNDER THE SECURITIES ACT) THAT IS AN INSTITUTIONAL INVESTOR IN A TRANSACTION
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER
JURISDICTIONS OF THE UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE
AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALES OF THIS SECURITY.
THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING
RESTRICTIONS.
USF&G CORPORATION
(Deferrable Interest Junior Subordinated Debenture)
CUSIP NO. 902965AB8
No. D1 $ 103,093,000
USF&G CORPORATION, a corporation organized and existing under the laws of
Maryland (hereinafter called the "Company", which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to The Bank of New York, as Property Trustee, or
registered assigns, the principal sum of One Hundred Three Million Ninety-Three
Thousand Dollars ($103,093,000), or such other principal amount as may be set
forth in the records of the Securities Registrar hereinafter referred to in
accordance with the Indenture, on December 15, 2045 (unless the maturity is
shortened as hereinafter provided). The Company further promises to pay interest
on said principal sum from December 24, 1996 or from the most recent interest
payment date (each such date, an "Interest Payment Date") on which interest has
been paid or duly provided for semi-annually (subject to deferral as set forth
herein) in arrears on June 15 and December 15 of each year, commencing June 15,
1997, at the rate of 8 1/2% per annum, until the principal hereof shall have
become due and payable, plus Additional Interest, if any, until the principal
hereof is paid or duly provided for or made available for payment and on any
overdue principal and (without duplication and to the extent that payment of
such interest is enforceable under applicable law) on any overdue installment of
interest at the rate of 8 1/2% per annum, compounded semi-annually. The amount
of interest payable for any period less than a full interest period shall be
computed on the basis of twelve 30-day months and a 360-day year and the actual
number of days elapsed in a partial month in a period. The amount of interest
payable for any full interest period shall be computed by dividing the rate per
annum by two. In the event that any date on which interest is payable on this
Security is not a Business Day, then a payment of the interest payable on such
date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on the date the payment was originally payable.
A "Business Day" shall mean any day other than (i) a Saturday or Sunday, (ii) a
day on which banking institutions in the City of New York are authorized or
required by law or executive order to remain closed or (iii) a day on which the
Corporate Trust Office of the Trustee, or the principal office of the Property
Trustee under the Trust Agreement hereinafter referred to for USF&G Capital I,
is closed for business. The interest installment so payable, and punctually paid
or duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest installment, which shall be one Business Day prior
to the relevant Interest Payment Date. Any such interest installment not so
punctually paid or duly provided for shall forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities of this series not less than 10 days prior to such Special Record
Date, or be paid at any time in any other lawful manner not inconsistent with
the requirements of any securities exchange on which the Securities of this
series may be listed, and upon such notice as may be required by such exchange,
all as more fully provided in said Indenture.
So long as no Event of Default has occurred and is continuing, the Company
shall have the right at any time during the term of this Security to defer
payment of interest on this Security, at any time or from time to time, for up
to ten consecutive semi-annual interest payment periods with respect to each
deferral period (each an "Extension Period"), during which Extension Periods the
Company shall have the right to make partial payments of interest on any
Interest Payment Date, and at the end of which the Company shall pay all
interest then accrued and unpaid on the Securities (together with Additional
Interest thereon to the extent permitted by applicable law); provided, however,
that no Extension Period shall extend beyond the Stated Maturity of the
principal of this Security; provided, further, that during any such Extension
Period, the Company shall not, and shall not permit any Subsidiary of the
Company to, (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stock, (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank pari passu in all respects with or junior in interest to this
Security or (iii) make any guarantee payments with respect to any guarantee by
the Company of the debt securities of any subsidiary of the Company if such
guarantee ranks pari passu with or junior in interest to this Security (other
than (a) in securities of the Company junior in interest to the Securities, (b)
any declaration of a dividend in connection with the implementation of a Rights
Plan, the issuance of any Common Stock or any class or series of preferred stock
of the Company under any Rights Plan in the future or the redemption or
repurchase of any rights distributed pursuant to a Rights Plan, (c) payments
under any USF&G Guarantee, (d) purchases of Common Stock related to the issuance
of Common Stock or rights under any of the Company's benefit plans for its
directors, officers or employees, (e) payments made on any series of Securities
upon the stated maturity of such Securities and (f) payments of accrued
dividends (and cash in lieu of fractional shares) upon conversion into common
stock of any convertible preferred stock of the Company of any series now or
hereinafter outstanding, in accordance with the terms of such stock). Prior to
the termination of any such Extension Period, the Company may further extend the
interest payment period, provided that no Extension Period shall exceed ten (10)
consecutive semi-annual periods or extend beyond the Stated Maturity of the
principal of this Security. Upon the termination of any such Extension Period
and upon the payment of all amounts then due on any Interest Payment Date, the
Company may elect to begin a new Extension Period, subject to the above
requirements. No interest shall be due and payable during an Extension Period
except at the end thereof. The Company shall give the Property Trustee and the
Debenture Trustee notice of its election to begin any Extension Period at least
one Business Day prior to the earlier of (i) the date on which Distributions on
the Capital Securities would be payable but for such deferral or (ii) the date
the Property Trustee is required to give notice to any applicable
self-regulatory organization or to holders of such Capital Securities of the
record date or the date such Distributions are payable, but in any event not
less than one Business Day prior to such record date. For purposes hereof, the
Company's Senior Indebtedness shall not be deemed to be pari passu with this
Security.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the United States, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Company, payment of
interest may be made (i) by check mailed to the address of the Person entitled
thereto as such address shall appear in the Securities Register or (ii) by wire
transfer in immediately available funds at such place and to such account as may
be designated by the Person entitled thereto as specified in the Securities
Register.
The indebtedness evidenced by this Security is, to the extent provided in the
Indenture, subordinate and junior in right of payment to the prior payment in
full of all Senior Indebtedness of the Company, and this Security is issued
subject to the provisions of the Indenture with respect thereto. The Holder of
this Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
actions as may be necessary or appropriate to effectuate the subordination so
provided and (c) appoints the Trustee his attorney-in-fact for any and all such
purposes. The Holder hereof, by his acceptance hereof, waives all notice of the
acceptance of the subordination provisions contained herein and in the Indenture
by each holder of Senior Indebtedness, whether now outstanding or hereafter
incurred, and waives reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Security set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
USF&G CORPORATION
By: /s/ Dan L. Hale
Name: Dan L. Hale
Title: Executive Vice President,
Chief Financial Officer
Attest: By: /s/ John F. Hoffen, Jr.
John F. Hoffen, Jr., Secretary
Certificate of Authentication
This is one of the Securities referred to in the within mentioned Indenture.
Dated: December 24, 1996 The Bank of New York
as Trustee
By: /s/ Byron Merino
Authorized Signatory
[Reverse of Security]
This Security is one of a duly authorized issue of securities of the Company
(herein called the "Securities"), issued and to be issued in one or more series
under a Junior Subordinated Indenture, dated as of December 24, 1996 (herein
called the "Indenture"), between the Company and The Bank of New York, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Trustee, the Company and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered. This Security is one of the series
designated on the face hereof, limited in aggregate principal amount to
$103,093,000.
All terms used in this Security that are defined in the Indenture or in the
Amended and Restated Trust Agreement, dated as of December, 24, 1996 as amended
(the "Trust Agreement"), for USF&G Capital I, among USF&G CORPORATION, as
Depositor, and the Trustees named therein, shall have the meanings assigned to
them in the Indenture or the Trust Agreement, as the case may be.
Upon the occurrence and during the continuation of a Tax Event in respect of
a USF&G Trust, the Company may, at its option, within 90 days of the occurrence
of such Tax Event, redeem this Security, in whole but not in part, subject to
the provisions of Section 11.7 and the other provisions of Article XI of the
Indenture, at a Redemption Price equal to the Make-Whole Amount (as hereinafter
defined) for a corresponding principal amount of this Security, together with
accrued Distributions to, but excluding, the date fixed for redemption. The
Make-Whole Amount shall be equal to the greater of (i) 100% of the principal
amount of this Security or (ii) as determined by a Quotation Agent (as
hereinafter defined), the sum of the present values of the principal amount
together with scheduled payments of interest from the prepayment date to the
Stated Maturity (the "Remaining Life"), in each case discounted to the
prepayment date on a semi-annual basis (assuming a 360-day year consisting of
30-day months) at the Adjusted Treasury Rate (as hereinafter defined). In
addition, if such Tax Event relates to the deductibility of interest by the
Company on this Security, and if the opinion referred to in the definition of
Tax Event states that the risk of non-deductibility would be avoided if the
maturity of this Security was shortened, the Company may, at its option, within
90 days of the occurrence of such Tax Event, shorten the maturity of this
Security by the amount stated in such opinion to be the minimum extent required
in order to avoid suck risk, but in no event may the Company shorten the
maturity to a Stated Maturity of less than 19 1/2 years from the date of
original issuance. In the event the Company exercises such option to shorten the
maturity, the Company will no longer have the right to redeem this Security
prior to the new Stated Maturity upon the occurrence of a Tax Event or to
further shorten the maturity of this Security.
"Adjusted Treasury Rate" means, with respect to any prepayment date, the
Treasury Rate (as hereinafter defined) plus (i) 1.25% if such prepayment date
occurs on or before December 31, 1997 or (ii) 0.50% if such prepayment date
occurs after December 31, 1997.
"Treasury Rate" means (i) the yield, under the heading which represents the
average for the immediately prior week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor publication which is
published weekly by the Federal Reserve and which establishes yields on actively
traded United States Treasury securities adjusted to constant maturity under the
caption "Treasury Constant Maturities", for the Comparable Treasury Issue (as
hereinafter defined) or (ii) if such release (or any successor release) is not
published during the week preceding the calculation date or does not contain
such yields, the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, calculated using a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price (as hereinafter defined) for such
prepayment date. The Treasury Rate shall be calculated on the third Business Day
preceding the prepayment date.
"Comparable Treasury Issue" means with respect to any prepayment date the
United States Treasury security selected by the Quotation Agent as having a
maturity comparable to the Remaining Life that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the Remaining
Life. If no United States Treasury security has a maturity which is within a
period from three months before to three months after December 15, 2045, the two
most closely corresponding United States Treasury securities shall be used as
the Comparable Treasury Issue, and the Treasury Rate shall be interpolated or
extrapolated on a straight-line basis, rounding to the nearest month using such
securities; provided, however, that if the Remaining Life is longer than the
longest United States Treasury Security, the longest maturity United States
Treasury Security shall be used as the Comparable Treasury Issue, without
extrapolation.
"Quotation Agent" means Goldman, Sachs & Co. and their respective
successors; provided, however, that if the foregoing shall case to be a primary
U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), the Company shall substitute therefor another Primary Treasury Dealer.
Reference Treasury Dealer means (i) the Quotation Agent and (ii) any other
Primary Treasury Dealer selected by the Debenture Trustee after consultation
with the Company.
"Comparable Treasury Price" means (A) the average of five Reference
Treasury Dealer Quotations (as hereinafter defined) for such prepayment date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations; or (B) if the Debenture Trustee obtains fewer than three such
Reference Treasury Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any prepayment date, the average, as determined by
the Debenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such prepayment date.
In the event of redemption of this Security in part only, a new Security or
Securities of this series for the unredeemed portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
The Indenture contains provisions for satisfaction and discharge of the
entire indebtedness of this Security upon compliance by the Company with certain
conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee at any time to enter into a supplemental indenture or
indentures for the purpose of modifying in any manner the rights and obligations
of the Company and of the Holders of the Securities, with the consent of the
Holders of not less than a majority in principal amount of the Outstanding
Securities of each series to be affected by such supplemental indenture. The
Indenture also contains provisions permitting Holders of specified percentages
in principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all Securities of such series, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Security shall be conclusive and binding upon such Holder and
upon all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, if an Event of
Default with respect to this Security occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% in aggregate
outstanding principal amount of this Security may declare the principal amount
of this Security to be due and payable immediately, by a notice in writing to
the Company (and to the Trustee if given by Holders), provided that, if the
Trustee or the Holders of not less than 25% in aggregate outstanding principal
amount of this Security fails to declare the principal amount of this Security
to be immediately due and payable, the holders of at least 25% in aggregate
Liquidation Amount of the Capital Securities of USF&G Capital I then outstanding
shall have such right by a notice in writing to the Company and the Trustee; and
upon any such declaration the principal amount of and the accrued interest
(including any Additional Interest) on all the Securities of this series shall
become immediately due and payable, provided that the payment of principal and
interest (including any Additional Interest) on such Securities shall remain
subordinated to the extent provided in Article XIII of the Indenture.
No reference herein to the Indenture and no provision of this Security or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Securities Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company maintained under Section 10.2 of the Indenture duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Securities Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees. No
service charge shall be made for any such registration of transfer or exchange,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee shall treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
This Security is issuable only in registered form without coupons in minimum
denominations of $100,000 and any integral multiples of $1,000 in excess
thereof. As provided in the Indenture and subject to certain limitations therein
set forth, this Security is exchangeable for a like aggregate principal amount
of Securities of this series of a different authorized denomination, as
requested by the Holder surrendering the same.
The Company and, by its acceptance of this Security or a beneficial interest
therein, the Holder of, and any Person that acquires a beneficial interest in,
this Security agree that for United States Federal, state and local tax
purposes, it is intended that this Security constitute indebtedness.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE NEW YORK.
Amended and Restated
Trust Agreement
among
USF&G CORPORATION
(as Depositor)
THE BANK OF NEW YORK
(as Property Trustee)
THE DELAWARE TRUSTEE NAMED HEREIN
and
THE ADMINISTRATORS NAMED HEREIN
Dated as of
January 10, 1997
USF&G CAPITAL II
TABLE OF CONTENTS
ARTICLE I
Defined Terms 2
Section 1.01. Definitions. 2
AGREEMENT ARTICLE II
Continuation of the Trust 10
Section 2.01. Name. 10
Section 2.02. Office of the Delaware Trustee; Principal
Place of Business. 10
Section 2.03. Initial Contribution of Trust Property;
Organizational Expenses. 11
Section 2.04. Issuance of the Capital Securities. 11
Section 2.05. Subscription and Purchase of Debentures;
Issuance of the Common Securities. 11
Section 2.06. Declaration of Trust. 11
Section 2.07. Authorization to Enter into Certain Transactions. 12
Section 2.08. Assets of Trust. 15
Section 2.09. Title to Trust Property. 15
ARTICLE III
Payment Account 15
Section 3.01. Payment Account. 15
ARTICLE IV
Distributions; Redemption 16
Section 4.01. Distributions. 16
Section 4.02. Redemption. 17
Section 4.03. Subordination of Common Securities. 19
Section 4.04. Payment Procedures. 19
Section 4.05. Tax Returns and Reports. 20
Section 4.06. Payments Under Indenture. 20
ARTICLE V
Trust Securities Certificates 20
Section 5.01. Initial Ownership. 20
Section 5.02. The Trust Securities Certificates. 20
Section 5.03. Delivery of Trust Securities Certificates. 21
Section 5.04. Registration of Transfer and Exchange of
Capital Securities Certificates. 21
Section 5.05. Mutilated, Destroyed, Lost or Stolen
Trust Securities Certificates. 22
Section 5.06. Persons Deemed Securityholders. 22
Section 5.07. Access to List of Securityholders' Names and Addresses. 23
Section 5.08. Maintenance of Office or Agency. 23
Section 5.09. Appointment of Paying Agent. 23
Section 5.10. Ownership of Common Securities by Depositor. 24
Section 5.11. Book-Entry Capital Securities Certificates;
Common Securities Certificate. 24
Section 5.12. Notices to Clearing Agency. 25
Section 5.13. Definitive Capital Securities Certificates. 25
Section 5.14. Rights of Securityholders. 26
ARTICLE VI
Acts of Securityholders; Meetings; Voting 26
Section 6.01. Limitations on Voting Rights. 26
Section 6.02. Notice of Meetings. 27
Section 6.03. Meetings of Capital Securityholders. 27
Section 6.04. Voting Rights. 28
Section 6.05. Proxies, etc. 28
Section 6.06. Securityholder Action by Written Consent. 28
Section 6.07. Record Date for Voting and Other Purposes. 29
Section 6.08. Acts of Securityholders. 29
Section 6.09. Inspection of Records. 30
ARTICLE VII
Representations and Warranties 30
Section 7.01. Representations and Warranties of the Trustee
and the Administrators. 30
ARTICLE VIII
The Trustees 32
Section 8.01. Certain Duties and Responsibilities. 32
Section 8.02. Notice of Defaults; Direct Action by Securityholders. 33
Section 8.03. Certain Rights of Property Trustee. Subject to the
provisions of Section 8.01. 33
Section 8.04. Not Responsible for Recitals or Issuance of Securities. 34
Section 8.05. May Hold Securities. 35
Section 8.06. Compensation; Indemnity; Fees. 35
Section 8.07. Corporate Property Trustee Required;
Eligibility of Trustees. 35
Section 8.08. Conflicting Interests. 36
Section 8.09. Co-Trustees and Separate Trustee. 36
Section 8.10. Resignation and Removal; Appointment of Successor. 38
Section 8.11. Acceptance of Appointment by Successor. 39
Section 8.12. Merger, Conversion, Consolidation or Succession
to Business. 40
Section 8.13. Preferential Collection of Claims Against
Depositor or Trust. 40
Section 8.14. Reports by Property Trustee. 40
Section 8.15. Reports to the Property Trustee. 41
Section 8.16. Evidence of Compliance with Conditions Precedent. 41
Section 8.17. Number of Trustees. 41
Section 8.18. Delegation of Power. 42
Section 8.19. Voting. 42
ARTICLE IX
Termination and Liquidation 42
Section 9.01. Termination Upon Expiration Date. 42
Section 9.02. Early Termination. 42
Section 9.03. Termination. 43
Section 9.04. Liquidation. 43
ARTICLE X
Miscellaneous Provisions 45
Section 10.01. Limitation of Rights of Securityholders. 45
Section 10.02. Amendment. 45
Section 10.03. Separability. 46
Section 10.04. Governing Law. 46
Section 10.05. Payments Due on Non-Business Day. 47
Section 10.06. Successors. 47
Section 10.07. Headings. 47
Section 10.08. Reports, Notices and Demands. 47
Section 10.09. Agreement Not to Petition. 48
Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act. 48
Section 10.11. Acceptance of Terms of Trust Agreement,
Guarantee and Indenture. 49
AMENDED AND RESTATED TRUST AGREEMENT, dated as of January 10, 1997, among
(i) USF&G Corporation, a Maryland corporation (the "Depositor"), (ii) The Bank
of New York, a New York banking corporation duly organized and existing under
the laws of the State of New York, as trustee (the "Property Trustee"), (iii)
The Bank of New York (Delaware), a Delaware corporation duly organized and
existing under the laws of the State of Delaware, as Delaware trustee (the
"Delaware Trustee"), (iv) J. Kendall Huber, an individual, John Hoffen an
individual and Toby Slodden an individual, each of whose address is c/o USF&G
Corporation, 100 Light Street, Baltimore, Maryland 21202 (each an
"Administrator" and collectively the "Administrators") (the Property Trustee,
the Delaware Trustee and the Administrators are referred to collectively as the
"Trustees") and (v) the several Holders, as hereinafter defined.
WITNESSETH:
WHEREAS, the Depositor, the Property Trustee, the Delaware Trustee and J.
Kendall Huber, as a trustee of the Trust have heretofore duly declared and
established a business trust pursuant to the Delaware Business Trust Act by the
entering into of that certain Trust Agreement, dated as of December 28, 1995
(the "Original Trust Agreement"), and by the execution and filing with the
Secretary of State of the State of Delaware of the Certificate of Trust, filed
on December 28, 1995, attached as Exhibit A;
WHEREAS, J. Kendall Huber has resigned as Administrativee Trustee
and J. Kendall Huber, Toby Slodden and John Hoffen have been appointed as
Administrators of the Trust; and
WHEREAS, the Depositor, the Property Trustee, the Delaware Trustee and the
Administrators desire to amend and restate the Original Trust Agreement in its
entirety as set forth herein to provide for, among other things, (i) the
issuance of the Common Securities by the Trust to the Depositor, (ii) the
issuance and sale of the Capital Securities by the Trust pursuant to the
Purchase Agreement, (iii) the acquisition by the Trust from the Depositor of all
of the right, title and interest in the Debentures;
NOW THEREFORE, in consideration of the agreements and obligations set forth
herein and for other good and valuable consideration, the sufficiency of which
is hereby acknowledged, each party, for the benefit of the other party and for
the benefit of the Securityholders, hereby amends and restates the Original
Trust Agreement in its entirety and agrees as follows:
ARTICLE I
Defined Terms
Section 1.01. Definitions.
For all purposes of this Trust Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(b) all other terms used herein that are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may
be, of this Trust Agreement; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision.
"Act " has the meaning specified in Section 6.08.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or a given period, the amount of Additional Interest (as
defined in the Indenture) paid by the Depositor on a Like Amount of Debentures
for such period.
"Administrator" means each of the individuals identified as an
"Administrator" in the preamble to this Trust Agreement, solely in his capacity
as Administrator of the Trust created and continued hereunder and not in his
individual capacity, or such Administrator's successor in interest in such
capacity, or any successor trustee appointed as herein provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of such Person in an involuntary case
or proceeding under any applicable Bankruptcy Law or (B) a decree or order
adjudging such Person a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjudication or
composition of or in respect of such Person under any applicable Federal or
State law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of such Person or of any
substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree or order for relief
or any such other decree or order unstayed and in effect for a period of 90
consecutive days; or
(b) the commencement by such Person of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or of the consent by it to the
entry of a decree or order for relief in respect of such Person in an
involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it,
or the filing by it of a petition or answer or consent seeking
reorganization or relief under Federal or State law, or the consent by it
to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of such Person or of any substantial part
of its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due, or the taking of corporate action by
such Person in furtherance of any such action.
"Bankruptcy Laws" has the meaning specified in Section 10.09.
"Board Resolution" means (i) a copy of a resolution certified by the
Corporate Secretary or an Assistant Corporate Secretary of the Depositor to have
been duly adopted by the Depositor's Board of Directors or a committee thereof
and to be in full force and effect on the date of such certification or (ii) a
certificate signed by the authorized officer or officers of the Depositor to
whom the board of directors of the Depositor or a committee thereof has
delegated its authority, and in each case, delivered to the Trustee.
"Book Entry Capital Securities Certificates" means the Capital Securities
Certificates, ownership and transfers of which shall be made through book
entries by a Clearing Agency as described in Section 5.11.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day
on which banking institutions in The City of New York are authorized or
obligated by law or executive order to remain closed, or (c) a day on which the
Property Trustee's Corporate Trust Office or the Debenture Trustee's principal
corporate trust office is closed for business.
"Capital Securities Certificate" means a certificate evidencing ownership
of Capital Securities, substantially in the form attached as Exhibit E.
"Capital Security" means an undivided beneficial interest in the assets of
the Trust, having a Liquidation Amount of $1,000 and having rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Certificate Depository Agreement" means the agreement among the Trust, the
Property Trustee and The Depository Trust Company, as the initial Clearing
Agency, dated as of the Closing Date, relating to the Capital Securities
Certificates, substantially in the form attached as Exhibit B, as the same may
be amended and supplemented from time to time.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. The
Depository Trust Company will be the initial Clearing Agency.
"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
"Closing Date" means the First Time of Delivery as defined in the Purchase
Agreement, which date is also the date of execution and delivery of this Trust
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, as amended,
or, if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Security" means an undivided beneficial interest in the assets of
the Trust, having a Liquidation Amount of $1,000 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Common Securities Certificate" means a certificate evidencing ownership of
Common Securities, substantially in the form attached as Exhibit C.
"Corporate Trust Office" means the principal corporate trust office of the
Property Trustee located in New York, New York, which at the date hereof is 101
Barclay Street, Floor 21 W, New York, New York 10286.
"Debenture Event of Default" means an "Event of Default" as defined in the
Indenture.
"Debenture Redemption Date" means "Redemption Date" as defined in the
Indenture.
"Debenture Trustee" means The Bank of New York, a New York banking
corporation organized under the laws of the State of New York, as any successor
appointed in accordance with the terms and provisions of the Indenture.
"Debentures" means the $100,000,000 aggregate principal amount of the
Depositor's 8.47% Deferrable Interest Junior Subordinated Debentures, Series B,
Due 2027, issued pursuant to the Indenture.
"Definitive Capital Securities Certificates" means Capital Securities
Certificates issued in certificated, fully registered form as provided in
Section 5.13.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. C. ss. 3801, et seq., as it may be amended from time to
time.
"Delaware Trustee" means the entity identified as the "Delaware Trustee" in
the preamble to this Trust Agreement solely in its capacity as Delaware Trustee
of the Trust created and continued hereunder and not in its individual capacity,
or its successor in interest in such capacity, or any successor trustee
appointed as herein provided.
"Depositor" has the meaning specified in the preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 4.01(a).
"Distributions" means amounts payable in respect of the Trust Securities as
provided in Section 4.01.
"Event of Default" means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) the occurrence of a Debenture Event of Default; or
(b) default by the Property Trustee in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days; or
(c) default by the Property Trustee in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Trustees in this Trust Agreement (other
than a covenant or warranty, a default in whose performance or breach is
dealt with in clause (b) or (c) above) and continuation of such default or
breach for a period of 60 days after there has been given, by registered or
certified mail, to the defaulting Trustee or Trustees by the Holders of at
least 10% in Liquidation Amount of the Outstanding Capital Securities a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" hereunder;
or
(e) the occurrence of a Bankruptcy Event with respect to the Property
Trustee and failure by the Depositor to appoint a successor Property
Trustee within 60 days thereof.
"Expense Agreement" means the Agreement as to Expenses and Liabilities
between the Depositor and the Trust, substantially in the form attached as
Exhibit D, as amended from time to time.
"Grantor Trust Event" has the meaning specified in Section 9.02(b).
"Guarantee" means the Guarantee Agreement executed and delivered by the
Depositor and The Bank of New York, a New York banking corporation, as trustee,
contemporaneously with the execution and delivery of this Trust Agreement, for
the benefit of the Holders of the Capital Securities, as amended from time to
time.
"Indenture" means the Indenture, dated as of January 10, 1997, between the
Depositor and the Debenture Trustee, as trustee, as amended or supplemented from
time to time.
"Investment Company Event" means the occurrence of a change in law or
regulation or a change in interpretation or application of law or regulation by
any legislative body, court, governmental agency or regulatory authority (a
"Change in 1940 Act Law") to the effect that the Trust is or will be considered
an "investment company" that is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after the date of original
issuance of the Capital Securities.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to the principal amount of
Debentures to be contemporaneously redeemed in accordance with the Indenture and
the proceeds of which will be used to pay the Redemption Price of such Trust
Securities, and (b) with respect to a distribution to Holders of Trust
Securities of Debentures in connection with a termination or liquidation of the
Trust, Debentures having a principal amount equal to the aggregate Liquidation
Amount of the Trust Securities of the Holder to whom such Debentures are
distributed.
"Liquidation Amount" means the stated amount of $1,000 per Trust Security.
"Liquidation Date" means the date on which Debentures are to be distributed
to Holders of Trust Securities in connection with a termination and liquidation
of the Trust pursuant to Section 9.04(a).
"Liquidation Distribution" has the meaning specified in Section 9.04(d).
"1940 Act" means the Investment Company Act of 1940, as amended.
"Officers' Certificate" means a certificate signed by (i) any two of the
following individuals: the Chairman, the President, an Executive Vice President
or a Vice President of the Depositor, or (ii) by one of the foregoing
individuals and by any other Vice President, the Treasurer, an Assistant
Treasurer, the Corporate Secretary or an Assistant Corporate Secretary of the
Depositor, or any other individual authorized by the Depositor's Board of
Directors for such purpose, and delivered to the Trustee. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Trust Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Trust, the Property Trustee or the Depositor, but not an employee of any
thereof, and who shall be reasonably satisfactory to the Property Trustee.
"Original Trust Agreement" has the meaning specified in the recitals to
this Trust Agreement.
"Outstanding", when used with respect to Capital Securities, means, as of
the date of determination, all Capital Securities theretofore executed and
delivered under this Trust Agreement, except:
(a) Capital Securities theretofore canceled by the Administrators or
delivered to the Administrators for cancellation;
(b) Capital Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Property Trustee
or any Paying Agent for the Holders of such Capital Securities; provided
that, if such Capital Securities are to be redeemed, notice of such
redemption has been duly given pursuant to this Trust Agreement; and
(c) Capital Securities which have been paid or in exchange for or in
lieu of which other Capital Securities have been executed and delivered
pursuant to Section 5.05, other than any such Capital Securities in respect
of which there shall have been presented to the Property Trustee proof
satisfactory to it that such Capital Securities are held by a bona fide
purchaser in whose hands such Capital Securities are valid obligations of
the Company;
provided, however that in determining whether the holders of the requisite
Liquidation Amount of the Outstanding Capital Securities have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, Capital
Securities owned by the Depositor, any Trustee or any Affiliate of the Depositor
or any Trustee shall be disregarded and deemed not to be Outstanding, except
that (a) in determining whether any Trustee shall be protected in relying upon
any such request, demand, authorization, direction, notice, consent or waiver,
only Capital Securities which such Trustee actually knows to be so owned shall
be so disregarded and (b) the foregoing shall not apply at any time when all of
the Outstanding Capital Securities are owned by the Depositor, one or more of
the Trustees and/or any such Affiliate. Capital Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Administrators the pledgee's right so to
act with respect to such Capital Securities and that the pledgee is not the
Depositor or any Affiliate of the Depositor.
"Owner" means each Person who is the beneficial owner of a Book Entry
Capital Securities Certificate as reflected in the records of the Clearing
Agency or, if a Clearing Agency Participant is not the beneficial owner, then as
reflected in the records of a Person maintaining an account with such Clearing
Agency (directly or indirectly, in accordance with the rules of such Clearing
Agency).
"Paying Agent" means the Property Trustee and any co-paying agent appointed
pursuant to Section 5.09.
"Payment Account" means a segregated non-interest-bearing corporate trust
account maintained by the Property Trustee or any other Paying Agent in its
trust department for the benefit of the Securityholders in which all amounts
paid in respect of the Debentures will be held and from which the Property
Trustee or such other Paying Agent shall make payments to the Securityholders in
accordance with Section 4.01.
"Person" means any individual, corporation, partnership, joint venture,
trust, limited liability company or corporation, unincorporated organization or
government or any agency or political subdivision thereof.
"Property Trustee" means the commercial bank or trust company identified as
the "Property Trustee" in the preamble to this Trust Agreement solely in its
capacity as Property Trustee of the Trust heretofore created and continued
hereunder and not in its individual capacity, or its successor in interest in
such capacity, or any successor property trustee appointed as herein provided.
"Redemption Date" means, with respect to any Trust Security to be redeemed,
the date fixed for such redemption by or pursuant to this Trust Agreement;
provided that each Debenture Redemption Date and the stated maturity of the
Debentures shall be a Redemption Date for a Like Amount of Trust Securities.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions thereon to the date of redemption, plus the amount of the premium,
if any, paid by the Depositor upon the concurrent redemption of a Like Amount of
Debentures.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 5.04.
"Securityholder" or "Holder" means a Person in whose name a Trust Security
or Securities is registered in the Securities Register; any such Person shall be
deemed to be a beneficial owner within the meaning of the Delaware Business
Trust Act.
"Special Event" has the meaning specified in Section 9.02(b).
"Tax Event" means that the Depositor shall have received an Opinion of
Counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein affecting taxation, or as a
result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or pronouncement or decision is announced on or after the date of
original issuance of the Capital Securities, there is more than an insubstantial
risk that (i) the Trust is, or will be, subject to United States federal income
tax with respect to income accrued or received on the Debentures, (ii) interest
payable by the Depositor on the Debentures is not, or will not be, deductible by
the Depositor for United States federal income tax purposes or (iii) the Trust
is, or will be, subject to more than a de minimis amount of other taxes, duties,
assessments or other governmental charges.
"Trust" means the Delaware business trust created and continued hereby and
identified on the cover page to this Trust Agreement.
"Trust Agreement" means this Amended and Restated Trust Agreement, as the
same may be modified, amended or supplemented in accordance with the applicable
provisions hereof, including all exhibits hereto, including, for all purposes of
this Trust Agreement and any such modification, amendment or supplement, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this Trust Agreement and any such modification, amendment or supplement,
respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Trust Property" means (a) the Debentures, (b) any cash on deposit in, or
owing to, the Payment Account and (c) all proceeds and rights in respect of the
foregoing and any other property and assets for the time being held or deemed to
be held by the Property Trustee pursuant to the trusts of this Trust Agreement.
"Trust Security" means any one of the Common Securities or the Capital
Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Capital Securities Certificates.
"Underwriting Agreement" means the Underwriting Agreement, dated January 7,
1997, among the Trust, the Depositor and the Underwriters named therein.
AGREEMENT ARTICLE II
Continuation of the Trust
Section 2.01. Name.
The Trust created and continued hereby shall be known as "USF&G Capital
II," as such name may be modified from time to time by the Administrators
following written notice to the Holders of Trust Securities and the other
Trustees, in which name the Trustees may conduct the business of the Trust, make
and execute contracts and other instruments on behalf of the Trust and sue and
be sued.
Section 2.02. Office of the Delaware Trustee; Principal Place of Business.
The address of the Delaware Trustee in the State of Delaware is White Clay
Center, Route 273, Newark, Delaware 19711 or such other address in the State of
Delaware as the Delaware Trustee may designate by written notice to the
Securityholders and the Depositor. The principal place of business of the Trust
is c/o USF&G Corporation, 100 Light Street, Baltimore, Maryland 21202.
Section 2.03. Initial Contribution of Trust Property; Organizational Expenses.
The Property Trustee acknowledges receipt in trust from the Depositor in
connection with the Original Trust Agreement of the sum of $10, which
constituted the initial Trust Property. The Depositor shall pay organizational
expenses of the Trust as they arise or shall, upon request of any Trustee,
promptly reimburse such Trustee for any such expenses paid by such Trustee. The
Depositor shall make no claim upon the Trust Property for the payment of such
expenses.
Section 2.04. Issuance of the Capital Securities.
On January 7, 1997 the Depositor, on behalf of the Trust and pursuant to
the Original Trust Agreement, executed and delivered the Underwriting Agreement.
Contemporaneously with the execution and delivery of this Trust Agreement, at
least one Administrator, on behalf of the Trust, shall execute in accordance
with Section 5.02 and deliver to the Underwriters named therein Capital
Securities Certificates, registered in the name of the nominee of the initial
Clearing Agency, in an aggregate amount of 100,000 Capital Securities having an
aggregate Liquidation Amount of $100,000,000, against receipt of the aggregate
purchase price of such Capital Securities of $100,000,000, which amount the
Administrators shall promptly deliver to the Property Trustee.
Section 2.05. Subscription and Purchase of Debentures; Issuance of the
Common Securities.
Contemporaneously with the execution and delivery of this Trust Agreement,
the Administrators, on behalf of the Trust, shall subscribe to and purchase from
the Depositor Debentures, registered in the name of the Trust and having an
aggregate principal amount equal to $100,000,000, and, in satisfaction of the
purchase price for such Debentures, the Property Trustee, on behalf of the
Trust, shall deliver to the Depositor the sum of $100,000,000, and
contemporaneously therewith, at least one Administrator, on behalf of the Trust,
shall execute in accordance with Section 5.02 and deliver to the Depositor
Common Securities Certificates, registered in the name of the Depositor, in an
aggregate amount of $3,093 Common Securities having an aggregate Liquidation
Amount of $3,093,000, and in satisfaction of the purchase price of such Common
Securities the Depositor shall deliver to the Trust the sum of $3,093,000.
Section 2.06. Declaration of Trust.
The exclusive purposes and functions of the Trust are (a) to issue and sell
Trust Securities and use the proceeds from such sale to acquire the Debentures,
(b) to maintain the status of the Trust as a grantor trust for federal income
tax purposes, and (c) except as otherwise limited herein, to engage in only
those activities necessary or incidental thereto. The Depositor hereby appoints
the Trustees as trustees of the Trust, to have all the rights, powers and duties
to the extent set forth herein, and the Trustees hereby accept such appointment.
The Property Trustee hereby declares that it will hold the Trust Property in
trust upon and subject to the conditions set forth herein for the benefit of the
Securityholders. The Administrators shall have only those ministeroa; duties set
forth herein with respect to accomplishing the purposes of the Trust and shall
not be trustees or fiduciaries with respect to the Trust or the Securityholders.
The Delaware Trustee shall not be entitled to exercise any powers, nor shall the
Delaware Trustee have any of the duties and responsibilities, of the Property
Trustee or the Administrators set forth herein. The Delaware Trustee shall be
one of the Trustees of the Trust for the sole and limited purpose of fulfilling
the requirements of Section 3807 of the Delaware Business Trust Act.
Section 2.07. Authorization to Enter into Certain Transactions.
(a) The Trustees and the Administrators shall conduct the affairs of the
Trust in accordance with the terms of this Trust Agreement. Subject to the
limitations set forth in paragraph (b) of this Section, and in accordance with
the following provisions (i) and (ii), the Trustees shall have the authority to
enter into all transactions and agreements determined by the Trustees to be
appropriate in exercising the authority, express or implied, otherwise granted
to the Trustees under this Trust Agreement, and to perform all acts in
furtherance thereof, including without limitation, the following:
(i) As among the Trustees and the Administrators, each Administrator
shall have the power and authority to act on behalf of the Trust with respect to
the following matters:
(A) issuing and selling the Trust Securities;
(B) causing the Trust to enter into, and to execute, deliver and
perform on behalf of the Trust, the Expense Agreement and the Certificate
Depository Agreement and such other agreements as may be necessary or desirable
in connection with the purposes and function of the Trust, including the
appointment of a successor depositary;
(C) assisting in the registration of the Capital Securities
under the Securities Act of 1933, as amended, and under state securities or blue
sky laws, and the qualification of this Trust Agreement as a trust indenture
under the Trust Indenture Act;
(D) assisting in the listing of the Capital Securities upon such
securities exchange or exchanges as shall be determined by the Depositor and the
registration of the Capital Securities under the Securities Exchange Act of
1934, as amended, and the preparation and filing of all periodic and other
reports and other documents pursuant to the foregoing;
(E) to the extent provided in this Trust Agreement, winding up
the affairs of and liquidating the Trust and preparing, executing and filing of
the certificate of cancellation with the Secretary of State of the State of
Delaware;
(F) sending notices (other than notices of defaults) and other
information regarding the Trust Securities and the Debentures to Securityholders
in accordance with this Trust Agreement; and
(G) taking any action incidental to the foregoing as the
Administrators may from time to time determine is necessary or advisable to give
effect to the terms of this Trust Agreement for the benefit of the
Securityholders (without consideration of the effect of any such action on any
particular Securityholder).
(ii) As among the Trustees and the Administrators, the Property
Trustee shall have the power, duty and authority to act on behalf of the Trust
with respect to the following matters:
(A) establishing and maintaining the Payment Account and
appointing Paying Agents (subject to Section 5.09);
(B) receiving the Debentures;
(C) collecting interest, principal and any other
payments made in respect of the Debentures in the Payment
Account;
(D) distributing amounts owed to the Securityholders in
respect of the Trust Securities;
(E) exercising all of the rights, powers and privileges
of a holder of the Debentures;
(F) sending notices of defaults and other information regarding
the Trust Securities and the Debentures to the Securityholders in accordance
with this Trust Agreement;
(G) distributing the Trust Property in accordance with the
terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, winding up
the affairs of and liquidation of the Trust and the executing of the certificate
of cancellation with the Secretary of State of the State of Delaware;
(I) after an Event of Default, taking any action incidental to
the foregoing as the Property Trustee may from time to time determine is
necessary or advisable to give effect to the terms of this Trust Agreement and
protect and conserve the Trust Property for the benefit of the Securityholders
(without consideration of the effect of any such action on any particular
Securityholder); and
(J) registering transfers of the Trust Securities in accordance
with this Trust Agreement (if at such time the Property Trustee shall be the
Securities Registrar).
(b) So long as this Trust Agreement remains in effect, the Trust (or the
Trustees and the Administrators acting on behalf of the Trust) shall not
undertake any business, activities or transaction except as expressly provided
herein or contemplated hereby. In particular, the Trustees acting on behalf of
the Trust shall not (i) acquire any assets or investments (other than the
Debentures as provided herein), reinvest the proceeds derived from investments,
possess any power or otherwise act in such a way as to vary the Trust Property
or engage in any activities not authorized by this Trust Agreement, (ii) sell,
assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of
any of the Trust Property or interests therein, including to Securityholders,
except as expressly provided herein, (iii) take any action that would cause the
Trust to fail or cease to qualify as a grantor trust for United States federal
income tax purposes, (iv) incur any indebtedness for borrowed money or issue any
other debt, (v) issue any securities or other evidences of beneficial ownership
of, or beneficial interests in, the Trust other than the Trust Securities, or
(vi) take or consent to any action that would result in the placement of a Lien
on any of the Trust Property. The Administrators shall defend all claims and
demands of all Persons at any time claiming any Lien on any of the Trust
Property adverse to the interest of the Trust or the Securityholders in their
capacity as Securityholders.
(c) In connection with the issue and sale of the Capital Securities, the
Depositor shall have the right and responsibility to assist the Trust with
respect to, or effect on behalf of the Trust, the following (and any actions
taken by the Depositor in furtherance of the following prior to the date of this
Trust Agreement are hereby ratified and confirmed in all respects):
(i) preparing for filing by the Trust with the Commission and
executing on behalf of the Trust a registration statement on Form S-3 in
relation to the Capital Securities, including any amendments thereto;
(ii) determining the States in which to take appropriate action to
qualify or register for sale all or part of the Capital Securities and doing any
and all such acts, other than actions which must be taken by or on behalf of the
Trust, and advising the Trustees of actions they must take on behalf of the
Trust, and prepare for execution and filing any documents to be executed and
filed by the Trust or on behalf of the Trust, as the Depositor deems necessary
or advisable in order to comply with the applicable laws of any such States;
(iii) preparing for filing by the Trust and executing on behalf of
the Trust an application to the New York Stock Exchange or any other national
stock exchange or the NASDAQ National Market for listing upon notice of issuance
of any Capital Securities;
(iv) preparing for filing by the Trust with the Commission and
executing on behalf of the Trust a registration statement on Form 8-A relating
to the registration of the Capital Securities under Section 12(b) or 12(g) of
the Securities Exchange Act of 1934, as amended, including any amendments
thereto;
(v) negotiating the terms of, and executing and delivering,
the Purchase Agreement providing for the sale of the Capital Securities; and
(vi) taking any other actions necessary or desirable to carry out
any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the Administrators are
authorized and directed to conduct the affairs of the Trust and to operate the
Trust so that the Trust will not be deemed to be an "investment company"
required to be registered under the 1940 Act, or taxed as a corporation or a
partnership for United States federal income tax purposes and so that the Trust
will qualify as a grantor trust for United States federal income tax purposes
and the Debentures will be treated as indebtedness of the Depositor for United
States federal income tax purposes. In this connection, the Depositor and the
Administrators are authorized to take any action, not inconsistent with
applicable law, the Certificate of Trust, as amended from time to time, or this
Trust Agreement, that each of the Depositor and the Administrators determines in
their discretion to be necessary or desirable for such purposes, as long as such
action does not materially adversely affect the interests of the holders of the
Capital Securities.
Section 2.08. Assets of Trust.
The assets of the Trust shall consist of the Trust Property.
Section 2.09. Title to Trust Property.
Legal title to all Trust Property shall be vested at all times in the
Property Trustee (in its capacity as such) and shall be held and administered by
the Property Trustee for the benefit of the Securityholders in accordance with
this Trust Agreement.
ARTICLE III
Payment Account
Section 3.01. Payment Account.
(a) On or prior to the Closing Date, the Property Trustee shall establish
the Payment Account. The Property Trustee and any agent of the Property Trustee
shall have exclusive control and sole right of withdrawal with respect to the
Payment Account for the purpose of making deposits in and withdrawals from the
Payment Account in accordance with this Trust Agreement. All monies and other
property deposited or held from time to time in the Payment Account shall be
held in the Payment Account by the Property Trustee or other applicable Paying
Agent for the exclusive benefit of the Securityholders and for distribution as
herein provided, including (and subject to) any priority of payments provided
for herein.
(b) The Property Trustee shall deposit in the Payment Account, promptly
upon receipt, all payments of principal or interest on, and any other payments
or proceeds with respect to, the Debentures. Amounts held in the Payment Account
shall not be invested pending distribution thereof.
ARTICLE IV
Distributions; Redemption
Section 4.01. Distributions.
(a) Distributions on the Trust Securities shall be cumulative, and will
accumulate whether or not there are funds of the Trust available for the payment
of Distributions. Distributions shall accrue from January 10, 1997 and, except
in the event that the Depositor exercises its right to extend the interest
payment period for the Debentures pursuant to the Indenture, shall be payable
semi-annually in arrears on January 10 and July 10 of each year, commencing on
July 10, 1997. If any date on which Distributions are otherwise payable on the
Trust Securities is not a Business Day, then the payment of such Distribution
shall be made on the next succeeding day which is a Business Day (and without
any interest or other payment in respect of any such delay) except that, if such
Business Day is in the next succeeding calendar year, payment of such
Distribution shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on such date (each date on which
Distributions are payable in accordance with this Section 4.01(a) a
"Distribution Date").
(b) The Trust Securities represent undivided beneficial interests in the
Trust Property, and, subject to Section 4.03 hereof, all Distributions will be
made pro rata on each of the Trust Securities. Distributions on the Trust
Securities shall be payable at a rate of 8.47% per annum of the Liquidation
Amount of the Trust Securities. The amount of Distributions payable for any full
semi-annual period shall be computed on the basis of a 360- day year of twelve
30-day months and, for any period less than a full period, on the basis of a
360-day year of twelve 30 day months and the actual number of days ela psed in a
partial month in a period. If the interest payment period for the Debentures is
extended pursuant to the Indenture, then the rate per annum at which
Distributions on the Trust Securities accumulate shall be increased by an amount
such that the aggregate amount of Distributions that accumulate on all Trust
Securities during any such extended interest payment period is equal to the
aggregate amount of interest (including interest payable on unpaid interest at
the percentage rate per annum set forth above, compounded semi-annually) that
accrues during any such extended interest payment period on the Debentures. The
amount of Distributions payable for any period shall include the Additional
Amounts, if any.
(c) Distributions on the Trust Securities shall be made from the Payment
Account by the Property Trustee or other applicable Paying Agent and shall be
payable on each Distribution Date only to the extent that the Trust has funds
then on hand and available in the Payment Account for the payment of such
Distributions.
(d) Distributions on the Trust Securities with respect to a Distribution
Date shall be payable to the Holders thereof as they appear on the Securities
Register for the Trust Securities on the relevant record date, which shall be
one Business Day prior to such Distribution Date; provided, however, that in the
event that the Capital Securities do not remain in book-entry-only form, the
relevant record date shall be the date 15 days prior to the relevant
Distribution Date.
Section 4.02. Redemption.
(a) On each Debenture Redemption Date, the Trust will be required to
redeem a Like Amount of Trust Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee by
first-class mail, postage prepaid, mailed not less than 20 nor more than 90 days
prior to the Redemption Date to each Holder of Trust Securities to be redeemed,
at such Holder's address appearing in the Security Register. All notices of
redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the CUSIP number;
(iv) if less than all the Outstanding Trust Securities are to be
redeemed, the identification and the total Liquidation Amount of the particular
Trust Securities to be redeemed;
(v) that on the Redemption Date the Redemption Price will become due
and payable upon each such Trust Security to be redeemed and that Distributions
thereon will cease to accrue on and after such date; and
(vi) if the Capital Securities are no longer in book-entry only form,
the place or places where Capital Securities Certificates are to be surrendered
for payment of the Redemption Price.
(c)The Trust Securities redeemed on each Redemption Date shall be redeemed
at the Redemption Price with the proceeds from the contemporaneous redemption of
Debentures. Redemptions of the Trust Securities shall be made and the Redemption
Price shall be payable on each Redemption Date only to the extent that the Trust
has funds then on hand and available in the Payment Account for the payment of
such Redemption Price.
(d)If the Trust, by action of the Property Trustee, gives a notice of
redemption in respect of any Capital Securities, then, by 11:00 a.m., New York
time, on the Redemption Date, subject to Section 4.02(c), the Property Trustee
will, so long as the Capital Securities are in book-entry-only form, irrevocably
deposit with the Clearing Agency for the Capital Securities funds sufficient to
pay the Redemption Price for the Capital Securities being redeemed on such date
and will give such Clearing Agency irrevocable instructions and authority to pay
the Redemption Price to the Holders of such Capital Securities. If the Capital
Securities are no longer in book-entry-only form, the Property Trustee, by 11:00
a.m., New York time, on the Redemption Date, subject to Section 4.02(c), will
irrevocably deposit with the Paying Agent funds sufficient to pay the Redemption
Price for the Capital Securities being redeemed on such date and will give the
Paying Agent irrevocable instructions and authority to pay the Redemption Price
to the Owners of such Capital Securities upon surrender of their Capital
Securities Certificates. Notwithstanding the foregoing, Distributions payable on
or prior to the Redemption Date for any Trust Securities called for redemption
shall be payable to the Holders of such Trust Securities as they appear on the
Securities Register for the Trust Securities on the relevant record dates for
the related Distribution Dates. If notice of redemption shall have been given
and funds deposited as required, then upon the date of such deposit, all rights
of Securityholders holding Trust Securities so called for redemption will cease,
except the right of such Securityholders to receive the Redemption Price, but
without interest, and such Trust Securities will cease to be Outstanding. In the
event that any date on which any Redemption Price is payable is not a Business
Day, then payment of the Redemption Price payable on such date will be made on
the next succeeding day which is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day, in each case, with the same force and effect as if made
on such date. In the event that payment of the Redemption Price in respect of
any Trust Securities called for redemption is improperly withheld or refused,
and not paid either by the Trust or by the Depositor pursuant to the Guarantee,
Distributions on such Trust Securities will continue to accrue, at the then
applicable rate, from the Redemption Date originally established by the Trust
for such Trust Securities to the date such Redemption Price is actually paid, in
which case the actual payment date will be the date fixed for redemption for
purposes of calculating the Redemption Price.
(e) If less than all the Outstanding Trust Securities are to be redeemed on
a Redemption Date, then the aggregate Liquidation Amount of Trust Securities to
be redeemed shall be allocated 3% to the Common Securities and 97% to the
Capital Securities. The particular Capital Securities to be redeemed shall be
selected not more than 90 days prior to the Redemption Date by the Property
Trustee from the Outstanding Capital Securities not previously called for
redemption, by such method as the Property Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $1,000 or an integral multiple thereof) of the aggregate Liquidation
Amount of Capital Securities of a denomination larger than $1,000. The Property
Trustee shall promptly notify the Securities Registrar in writing of the Capital
Securities selected for redemption and, in the case of any Capital Securities
selected for partial redemption, the Liquidation Amount thereof to be redeemed.
For all purposes of this Trust Agreement, unless the context otherwise requires,
all provisions relating to the redemption of Capital Securities shall relate, in
the case of any Capital Securities redeemed or to be redeemed only in part, to
the portion of the Liquidation Amount of Capital Securities which has been or is
to be redeemed.
Section 4.03. Subordination of Common Securities.
(a) Payment of Distributions (including Additional Amounts, if applicable)
on, and the Redemption Price of, the Trust Securities, as applicable, shall be
made pro rata based on the Liquidation Amount of the Trust Securities; provided,
however, that if on any Distribution Date or Redemption Date a Debenture Event
of Default shall have occurred and be continuing, no payment of any Distribution
(including Additional Amounts, if applicable) on, or Redemption Price of, any
Common Security, and no other payment on account of the redemption, liquidation
or other acquisition of Common Securities, shall be made unless payment in full
in cash of all accumulated and unpaid Distributions (including Additional
Amounts, if applicable) on all Outstanding Capital Securities for all
distribution periods terminating on or prior thereto, or in the case of payment
of the Redemption Price the full amount of such Redemption Price on all
Outstanding Capital Securities then being redeemed, shall have been made or
provided for, and all funds immediately available to the Property Trustee shall
first be applied to the payment in full in cash of all Distributions (including
Additional Amounts, if applicable) on, or the Redemption Price of, Capital
Securities then due and payable.
(b) In the case of the occurrence of any Debenture Event of Default, the
Holder of Common Securities will be deemed to have waived any right to act with
respect to any related Event of Default under this Trust Agreement until the
effect of such related Event of Default has been cured, waived or otherwise
eliminated. Until any such Event of Default under this Trust Agreement has been
so cured, waived or otherwise eliminated, the Property Trustee shall act solely
on behalf of the Holders of the Capital Securities and not the Holder of the
Common Securities, and only the Holders of the Capital Securities will have the
right to direct the Property Trustee to act on their behalf.
Section 4.04. Payment Procedures.
Subject to Section 4.02(d), payments in respect of the Capital Securities
shall be made by check mailed to the address of the Person entitled thereto as
such address shall appear on the Securities Register or, if the Capital
Securities are held by a Clearing Agency, such Distributions shall be made to
the Clearing Agency in immediately available funds, which shall credit the
relevant Persons' accounts at such Clearing Agency on the applicable
distribution dates. Payments in respect of the Common Securities shall be made
in such manner as shall be mutually agreed between the Property Trustee and the
Common Securityholder.
Section 4.05. Tax Returns and Reports.
The Administrators shall prepare (or cause to be prepared), at the
Depositor's expense, and file all Federal, State and local tax and information
returns and reports required to be filed by or in respect of the Trust. In this
regard, the Administrators shall (a) prepare and file (or cause to be prepared
or filed) the appropriate Internal Revenue Service Form required to be filed in
respect of the Trust in each taxable year of the Trust and (b) prepare and
furnish (or cause to be prepared and furnished) to each Securityholder the
related Internal Revenue Service Form 1099 OID, or any successor form or the
information required to be provided on such form. The Administrators shall
provide the Depositor and the Property Trustee with a copy of all such returns,
reports and schedules promptly after such filing or furnishing. The Trustees
shall comply with United States Federal withholding and backup withholding tax
laws and information reporting requirements with respect to any payments to
Securityholders under the Trust Securities.
Section 4.06. Payments Under Indenture.
Any amount payable hereunder to any Holder of Capital Securities shall be
reduced by any amount of any corresponding payments such Holder (or Owner with
respect to the Holder's Capital Securities) has directly received pursuant to
Section 508 of the Indenture.
ARTICLE V
Trust Securities Certificates
Section 5.01. Initial Ownership.
Upon the creation of the Trust and the contribution by the Depositor
pursuant to Section 2.03 and until the issuance of the Trust Securities, and at
any time during which no Trust Securities are outstanding, the Depositor shall
be the sole beneficial owner of the Trust.
Section 5.02. The Trust Securities Certificates.
(a) The Trust Securities Certificates shall be issued in minimum
denominations of $1,000 Liquidation Amount and integral multiples thereof. The
Trust Securities Certificates shall be executed on behalf of the Trust by manual
signature of at least one Administrator. Trust Securities Certificates bearing
the manual signatures of individuals who were, at the time when such signatures
shall have been affixed, authorized to sign on behalf of the Trust, shall be
validly issued and entitled to the benefits of this Trust Agreement,
notwithstanding that such individuals or any of them shall have ceased to be so
authorized prior to the delivery of such Trust Securities Certificates or did
not hold such offices at the date of delivery of such Trust Securities
Certificates.
(b) The Capital Securities Certificate shall not be valid until
authenticated by the manual signature of an authorized signatory of the Property
Trustee. The signature shall be conclusive evidence that the Capital Security
has been authenticated under this Trust Agreement.
(c) A transferee of a Trust Securities Certificate shall become a
Securityholder, and shall be entitled to the rights and subject to the
obligations of a Securityholder hereunder, upon due registration of such Trust
Securities Certificate in such transferee's name pursuant to Section 5.04.
(d) Upon a written order of the Trust signed by an Administrator, the
Property Trustee shall authenticate the Capital Securities for original issue.
The aggregate number of Capital Securities outstanding at any time shall not
exceed the number set forth Section 2.04 hereof.
(e) The Property Trustee may appoint an authenticating agent acceptable to
the Administrators to authenticate the Capital Securities. An authenticating
agent may authenticate Capital Securities whenever the Property Trustee may do
so. Each reference in this Trust Agreement to authenticate by the Property
Trustee includes authentication by such agent. An authenticating agent has the
same rights as the Property Trustee to deal with the Depositor or an Affiliate.
Section 5.03. Delivery of Trust Securities Certificates.
On the Closing Date and on any date on which Capital Securities are
required to be delivered pursuant to the exercise of the overallotment option
provided for in the Purchase Agreement, the Administrators shall cause Trust
Securities Certificates, in an aggregate Liquidation Amount as provided in
Sections 2.04 and 2.05, to be executed on behalf of the Trust as provided in
Section 5.02 and delivered to or upon a written order of the Depositor signed by
its Chairman of the Board, its President, any Executive Vice President or any
Vice President, without further corporate action by the Depositor, in authorized
denominations.
Section 5.04. Registration of Transfer and Exchange of Capital Securities
Certificates.
A registrar appointed by the Depositor (the "Securities Registrar") shall
keep or cause to be kept, at the office or agency maintained pursuant to Section
5.08, a register (the "Securities Register") in which, subject to such
reasonable regulations as it may prescribe, the Securities Registrar shall
provide for the registration of Trust Securities Certificates (subject to
Section 5.10 in the case of the Common Securities Certificates) and registration
of transfers and exchanges of Capital Securities Certificates as herein
provided. The Property Trustee shall be the initial Securities Registrar; any
successor Security Registrar shall be appointed in accordance with Section 2.07.
Upon surrender for registration of transfer of any Capital Securities
Certificate at the office or agency maintained pursuant to Section 5.08, the
Administrators or any one of them shall execute and deliver, in the name of the
designated transferee or transferees, one or more new Capital Securities
Certificates in authorized denominations of a like aggregate Liquidation Amount
dated the date of execution by such Administrator or Trustees. At the option of
a Holder, Capital Securities Certificates may be exchanged for other Capital
Securities Certificates in authorized denominations of the same class and of a
like aggregate Liquidation Amount upon surrender of the Capital Securities
Certificates to be exchanged at the office or agency maintained pursuant to
Section 5.08. The Securities Registrar shall not be required to register the
transfer of any Capital Securities that have been called for redemption, in
whole or in part, except the unredeemed portion of any Capital Security being
redeemed in part.
Every Capital Securities Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Administrators and the
Securities Registrar duly executed by the Holder or such Holder's attorney duly
authorized in writing. Each Capital Securities Certificate surrendered for
registration of transfer or exchange shall be canceled and subsequently disposed
of by the Administrators in accordance with their customary practice.
No service charge shall be made for any registration of transfer or
exchange of Capital Securities Certificates, but the Securities Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Capital Securities
Certificates.
Section 5.05. Mutilated, Destroyed, Lost or Stolen Trust Securities
Certificates.
If (a) any mutilated Trust Securities Certificate shall be surrendered to
the Securities Registrar, or if the Securities Registrar shall receive evidence
to its satisfaction of the destruction, loss or theft of any Trust Securities
Certificate and (b) there shall be delivered to the Securities Registrar, the
Property Trustee and the Administrators such security or indemnity as may be
required by them to save each of them harmless, then in the absence of notice
that such Trust Securities Certificate shall have been acquired by a bona fide
purchaser, the Administrators, the Property Trustee or any one of them, on
behalf of the Trust shall execute and make available for delivery, in exchange
for or in lieu of any such mutilated, destroyed, lost or stolen Trust Securities
Certificate, a new Trust Securities Certificate of like class, tenor and
denomination. In connection with the issuance of any new Trust Securities
Certificate under this Section, the Administrators or the Securities Registrar
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith. Any duplicate
Trust Securities Certificate issued pursuant to this Section shall constitute
conclusive evidence of an undivided beneficial interest in the assets of the
Trust, as if originally issued, whether or not the lost, stolen or destroyed
Trust Securities Certificate shall be found at any time.
Section 5.06. Persons Deemed Securityholders.
Prior to due presentation of a Trust Security Certificate for registration
of transfer, the Administrators or the Securities Registrar shall treat the
Person in whose name any Trust Securities Certificate shall be registered in the
Securities Register as the owner of such Trust Securities Certificate for the
purpose of receiving Distributions and for all other purposes whatsoever, and
neither the Trustees nor the Securities Registrar shall be bound by any notice
to the contrary.
Section 5.07. Access to List of Securityholders' Names and Addresses.
In the event that the Property Trustee is no longer the Securities
Registrar, the Administrators or the Depositor shall furnish or cause to be
furnished (a) to the Property Trustee, quarterly not later than 10 days prior to
a Distribution Date, a list, in such form as the Property Trustee may reasonably
require, of the names and addresses of the Securityholders as of the most recent
record date and (b) to the Property Trustee, promptly after receipt by any
Administrator or the Depositor of a request therefor from the Property Trustee
in order to enable the Property Trustee to discharge its obligations under this
Trust Agreement (including, without limitation, its obligation to pay
Distributions in accordance with Section 4.01 hereof), in each case to the
extent such information is in the possession or control of the Administrators or
the Depositor and is not identical to a previously supplied list or has not
otherwise been received by the Property Trustee. The rights of Securityholders
to communicate with other Securityholders with respect to their rights under
this Trust Agreement or under the Trust Securities, and the corresponding rights
of the Property Trustee shall be as provided in the Trust Indenture Act. Each
Holder, by receiving and holding a Trust Securities Certificate, and each Owner
shall be deemed to have agreed not to hold the Depositor, the Property Trustee
or the Administrators accountable by reason of the disclosure of its name and
address, regardless of the source from which such information was derived.
Section 5.08. Maintenance of Office or Agency.
The Property Trustee shall maintain in New York, New York, an office or
offices or agency or agencies where Capital Securities Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Trustees in respect of the Capital Securities
Certificates may be served. The Property Trustee shall give prompt written
notice to the Depositor and to the Securityholders of any change in the location
of the Securities Register or any such office or agency, which shall initially
be at the office of Corporate Trust Administration of the Property Trustee.
Section 5.09. Appointment of Paying Agent.
The Paying Agent shall make Distributions to Securityholders from the
Payment Account and shall report the amounts of such Distributions to the
Property Trustee and the Administrators. Any Paying Agent shall have the
revocable power to withdraw funds from the Payment Account for the purpose of
making the Distributions referred to above. The Administrators may revoke such
power and remove the Paying Agent if such Trustees determine in their sole
discretion that the Paying Agent shall have failed to perform its obligations
under this Trust Agreement in any material respect. The Paying Agent shall
initially be the Property Trustee, and any co-paying agent chosen by the
Property Trustee and acceptable to the Administrators and the Depositor. Any
Person acting as Paying Agent shall be permitted to resign as Paying Agent upon
30 days' written notice to the Administrators and the Depositor, and, if
applicable, the Property Trustee . In the event that the Property Trustee shall
no longer be the Paying Agent or a successor Paying Agent shall resign or its
authority to act be revoked, the Administrator shall appoint a successor that is
acceptable to the Property Trustee (in the case of any other Paying Agent) and
the Depositor to act as Paying Agent (which shall be a bank or trust company and
have a combined capital and surplus of at least $50,000,000). The Administrators
shall cause such successor Paying Agent or any additional Paying Agent appointed
by the Administrators to execute and deliver to the Trustees an instrument in
which such successor Paying Agent or additional Paying Agent shall agree with
the Trustees that as Paying Agent, such successor Paying Agent or additional
Paying Agent will hold all sums, if any, held by it for payment to the
Securityholders in trust for the benefit of the Securityholders entitled thereto
until such sums shall be paid to such Securityholders. The Paying Agent shall
return all unclaimed funds to the Property Trustee and upon removal of a Paying
Agent such Paying Agent shall also return all funds in its possession to the
Property Trustee. The provisions of Sections 8.01, 8.03 and 8.06 shall apply to
the Property Trustee also in its role as Paying Agent, for so long as the
Property Trustee shall act as Paying Agent and, to the extent applicable, to any
other paying agent appointed hereunder. Any reference in this Trust Agreement to
the Paying Agent shall include any co-paying agent unless the context requires
otherwise.
Section 5.10. Ownership of Common Securities by Depositor.
On the Closing Date and on each other date provided for in Section 2.05,
the Depositor shall acquire and retain beneficial and record ownership of the
Common Securities. To the fullest extent permitted by law, any attempted
transfer of the Common Securities shall be void. The Administrators shall cause
each Common Securities Certificate issued to the Depositor to contain a legend
stating "THIS CERTIFICATE IS NOT TRANSFERABLE".
Section 5.11. Book-Entry Capital Securities Certificates; Common Securities
Certificate.
(a) The Capital Securities Certificates, upon original issuance, will not
be engraved but will be issued in the form of a printed or typewritten Capital
Securities Certificate or Certificates representing Book-Entry Capital
Securities Certificates, to be delivered to The Depository Trust Company, the
initial Clearing Agency, by, or on behalf of, the Trust. Such Capital Securities
Certificate or Certificates shall initially be registered on the Securities
Register in the name of Cede & Co., the nominee of the initial Clearing Agency,
and no Owner will receive a Definitive Capital Securities Certificate
representing such Owner's beneficial interest in such Capital Securities, except
as provided in Section 5.13. Unless and until Definitive Capital Securities
Certificates have been issued to the Owners thereof pursuant to Section 5.13:
(i) the provisions of this Section 5.11(a) shall be in full force
and effect;
(ii) the Securities Registrar, the Paying Agent and the Trustees shall
be entitled to deal with the Clearing Agency for all purposes of this Trust
Agreement relating to the Book-Entry Capital Securities Certificates (including
the payment of the Redemption Price of and Distributions on the Book-Entry
Capital Securities and the giving of instructions or directions to Owners of
Book-Entry Capital Securities) as the sole Holder of Book- Entry Capital
Securities and shall have no obligations to the Owners thereof;
(iii) to the extent that the provisions of this Section 5.11 conflict
with any other provisions of this Trust Agreement, the provisions of this
Section 5.11 shall control; and
(iv) the rights of the Owners of the Book-Entry Capital Securities
Certificates shall be exercised only through the Clearing Agency and shall be
limited to those established by law and agreements between such Owners and the
Clearing Agency and/or the Clearing Agency Participants. Pursuant to the
Certificate Depository Agreement, unless and until Definitive Capital Securities
Certificates are issued pursuant to Section 5.13, the initial Clearing Agency
will make book-entry transfers among the Clearing Agency Participants and
receive and transmit payments on the Capital Securities to such Clearing Agency
Participants.
(b) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.
Section 5.12. Notices to Clearing Agency.
To the extent that a notice or other communication to the Owners is
required under this Trust Agreement, unless and until Definitive Capital
Securities Certificates shall have been issued to Owners pursuant to Section
5.13, the Trustees shall give all such notices and communications specified
herein to be given to Owners to the Clearing Agency, and shall have no
obligations to the Owners.
Section 5.13. Definitive Capital Securities Certificates.
If (a) the Depositor advises the Trustees in writing that the Clearing
Agency is no longer willing or able to properly discharge its responsibilities
with respect to the Capital Securities Certificates, and the Depositor is unable
to locate a qualified successor, (b) the Depositor at its option advises the
Trustees in writing that it elects to terminate the book-entry system through
the Clearing Agency or (c) after the occurrence of a Debenture Event of Default,
Owners of Capital Securities representing beneficial interests aggregating at
least a majority of the Liquidation Amount of the Outstanding Capital Securities
advise the Clearing Agency in writing that the continuation of a book-entry
system through the Clearing Agency is no longer in the best interest of the
Owners of Capital Securities, then the Clearing Agency shall notify all Owners
of Capital Securities and the Trustees of the occurrence of any such event and
of the availability of Definitive Capital Securities Certificates. Upon
surrender to the Administrators of the Capital Securities Certificate or
Certificates representing the Book Entry Capital Securities Certificates by the
Clearing Agency, accompanied by registration instructions, the Administrators,
or any one of them, shall execute the Definitive Capital Securities Certificates
in accordance with the instructions of the Clearing Agency. Neither the
Securities Registrar nor the Trustees shall be liable for any delay in delivery
of such instructions and may conclusively rely on, and shall be protected in
relying on, such instructions. The Definitive Capital Securities Certificates
shall be printed, lithographed or engraved or may be produced in any other
manner as is reasonably acceptable to the Administrators, as evidenced by the
execution thereof by the Administrators or any one of them.
Section 5.14. Rights of Securityholders.
The legal title to the Trust Property is vested exclusively in the
Property Trustee (in its capacity as such) in accordance with Section 2.09, and
the Securityholders shall not have any right or title therein other than the
undivided beneficial interest in the assets of the Trust conferred by their
Trust Securities and they shall have no right to call for any partition or
division of property, profits or rights of the Trust except as described below.
The Trust Securities shall be personal property giving only the rights
specifically set forth therein and in this Trust Agreement. The Trust Securities
shall have no preemptive or similar rights and when issued and delivered to
Securityholders against payment of the purchase price therefor will be fully
paid and nonassessable by the Trust. The Holders of the Trust Securities, in
their capacities as such, shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware.
ARTICLE VI
Acts of Securityholders; Meetings; Voting
Section 6.01. Limitations on Voting Rights.
(a) Except as provided herein and in the Indenture and as otherwise
required by law, no Holder of Capital Securities shall have any right to vote or
in any manner otherwise control the administration, operation and management of
the Trust or the obligations of the parties hereto, nor shall anything herein
set forth, or contained in the terms of the Trust Securities Certificates, be
construed so as to constitute the Securityholders from time to time as partners
or members of an association.
(b) So long as any Debentures are held by the Property Trustee, the
Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or executing any
trust or power conferred on the Debenture Trustee with respect to such
Debentures, (ii) waive any past default which is waivable under Section 513 of
the Indenture, (iii) exercise any right to rescind or annul a declaration that
the principal of all the Debentures shall be due and payable or (iv) consent to
any amendment, modification or termination of the Indenture or the Debentures,
where such consent shall be required, without, in each case, obtaining the prior
approval of the Holders of a majority in Liquidation Amount of all Outstanding
Capital Securities; provided, however, that where such consent or approval under
the Indenture would require the consent or approval of each holder of Debentures
affected thereby, no such consent or approval shall be given by the Property
Trustee without the prior written consent of each Holder of Outstanding Capital
Securities. The Trustees shall not revoke any action previously authorized or
approved by a vote of the Holders of Capital Securities, except by a subsequent
vote of the Holders of Capital Securities. The Property Trustee shall notify all
Holders of the Capital Securities of any notice of default received from the
Debenture Trustee with respect to the Debentures. In addition to obtaining the
foregoing approvals of the Holders of the Capital Securities, prior to taking
any of the foregoing actions, the Trustees shall, at the expense of the
Depositor, obtain an Opinion of Counsel experienced in such matters to the
effect that the Trust will not be classified as an association taxable as a
corporation or partnership for United States federal income tax purposes on
account of such action and will continue to be classified as a grantor trust for
United States federal income tax purposes.
(c) Subject to Section 10.02(c) hereof, if any proposed amendment to the
Trust Agreement provides for, or the Trustees otherwise propose to effect, (i)
any action that would adversely affect in any material respect the powers,
preferences or special rights of the Capital Securities, whether by way of
amendment to this Trust Agreement or otherwise, or (ii) the dissolution,
winding-up or termination of the Trust, other than pursuant to the terms of this
Trust Agreement, then the Holders of Outstanding Capital Securities as a class
will be entitled to vote on such amendment or proposal and such amendment or
proposal shall not be effective except with the approval of the Holders of a
majority in Liquidation Amount of the Outstanding Capital Securities.
Section 6.02. Notice of Meetings.
Notice of all meetings of the Capital Securityholders, stating the time,
place and purpose of the meeting, shall be given by the Property Trustee
pursuant to Section 10.08 to each Capital Securityholder of record, at his
registered address, at least 15 days and not more than 90 days before the
meeting. At any such meeting, any business properly before the meeting may be so
considered whether or not stated in the notice of the meeting. Any adjourned
meeting may be held as adjourned without further notice.
Section 6.03. Meetings of Capital Securityholders.
No annual meeting of Securityholders is required to be held. The
Administrators, however, shall call a meeting of Securityholders to vote on any
matter upon the written request of the Holders of 25% of the aggregate
Liquidation Amount of the Outstanding Capital Securities and the Administrators
or the Property Trustee may, at any time in their discretion, call a meeting of
Capital Securityholders to vote on any matters as to which the Capital
Securityholders are entitled to vote.
Holders of 50% of the aggregate Liquidation Amount of the Outstanding
Capital Securities, present in person or by proxy, shall constitute a quorum at
any meeting of Securityholders.
If a quorum is present at a meeting, an affirmative vote of the Holders of
a majority of the aggregate Liquidation Amount of the Outstanding Capital
Securities present, either in person or by proxy, at such meeting shall
constitute the action of the Securityholders, unless this Trust Agreement
requires a greater number of affirmative votes.
Section 6.04. Voting Rights.
Securityholders shall be entitled to one vote for each $1,000 of
Liquidation Amount represented by their Trust Securities in respect of any
matter as to which such Securityholders are entitled to vote.
Section 6.05. Proxies, etc.
At any meeting of Securityholders, any Securityholder entitled to vote
thereat may vote by proxy, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Administrators, or with such
other officer or agent of the Trust as the Administrators may direct, for
verification prior to the time at which such vote shall be taken. Pursuant to a
resolution of the Property Trustee, proxies may be solicited in the name of the
Property Trustee or one or more officers of the Property Trustee. Only
Securityholders of record shall be entitled to vote. When Trust Securities are
held jointly by several Persons, any one of them may vote at any meeting in
person or by proxy in respect of such Trust Securities, but if more than one of
them shall be present at such meeting in person or by proxy, and such joint
owners or their proxies so present disagree as to any vote to be cast, such vote
shall not be received in respect of such Trust Securities. A proxy purporting to
be executed by or on behalf of a Securityholder shall be deemed valid unless
challenged at or prior to its exercise, and the burden of proving invalidity
shall rest on the challenger. No proxy shall be valid more than three years
after its date of execution.
Section 6.06. Securityholder Action by Written Consent.
Any action which may be taken by Securityholders at a meeting may be taken
without a meeting if Holders of the proportion of the Outstanding Trust
Securities, or class thereof required to approve such action shall consent to
the action in writing.
Section 6.07. Record Date for Voting and Other Purposes.
For the purposes of determining the Securityholders who are entitled to
notice of and to vote at any meeting or by written consent, or to participate in
any Distribution on the Trust Securities in respect of which a record date is
not otherwise provided for in this Trust Agreement, or for the purpose of any
other action, the Administrators may from time to time fix a date, not more than
90 days prior to the date of any meeting of Securityholders or the payment of
any Distribution or other action, as the case may be, as a record date for the
determination of the identity of the Securityholders for such purposes.
Section 6.08. Acts of Securityholders.
Any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by this Trust Agreement to be given, made or
taken by Securityholders or Owners may be embodied in and evidenced by one or
more instruments of substantially similar tenor signed by such Securityholders
or Owners in person or by an agent duly appointed in writing; and, except as
otherwise expressly provided herein, such action shall become effective when
such instrument or instruments are delivered to an Administrator. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Securityholders or
Owners signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Trust Agreement and (subject to Section 8.01) conclusive, if
made in the manner provided in this Section.
The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which any Trustee receiving the same deems sufficient. The
ownership of Capital Securities shall be proved by the Securities Register.
Any request, demand, authorization, direction, notice, consent, waiver or
other act of the Securityholder of any Trust Security shall bind every future
Securityholder of the same Trust Security and the Securityholder of every Trust
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustees or the Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.
Without limiting the foregoing, a Securityholder entitled hereunder to
take any action hereunder with regard to any particular Trust Security may do so
with regard to all or any part of the Liquidation Amount of such Trust Security
or by one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such Liquidation Amount.
If any dispute shall arise between the Securityholders and the
Administrators or among such Securityholders or Trustees with respect to the
authenticity, validity or binding nature of any request, demand, authorization,
direction, consent, waiver or other Act of such Securityholder or Trustee under
this Article VI, then the determination of such matter by the Property Trustee
shall be conclusive with respect to such matter.
Section 6.09. Inspection of Records.
Upon reasonable notice to the Administrators and the Property Trustee, the
records of the Trust shall be open to inspection by Securityholders during
normal business hours for any purpose reasonably related to such
Securityholder's interest as a Securityholder.
ARTICLE VII
Representations and Warranties
Section 7.01. Representations and Warranties of the Trustee and the
Administrators.
The Property Trustee, the Delaware Trustee and the Administrator, each
severally on behalf of, and solely as to itself, hereby represents and warrants
for the benefit of the Depositor and the Securityholders that:
(a) the Property Trustee is a New York banking corporation duly organized,
validly existing and in good standing under the laws of the State of New York
and the Delaware Trustee is a Delaware corporation, duly organized, validly
existing and in good standing under the laws of the State of Delaware;
(b) each of the Property Trustee and the Delaware Trustee has full
corporate power, authority and legal right to execute, deliver and perform its
obligations under this Trust Agreement and has taken all necessary action to
authorize the execution, delivery and performance by it of this Trust Agreement;
(c) this Trust Agreement has been duly authorized, executed and delivered
by the Property Trustee, the Delaware Trustee and the Administrators in their
capacity as such, and constitutes the valid and legally binding agreement of the
Property Trustee, the Delaware Trustee and the Administrators in their capacity
as such, enforceable against them in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles;
(d) the execution, delivery and performance by the Property Trustee and
the Delaware Trustee of this Trust Agreement and the issuance of the Trust
Securities pursuant to this Trust Agreement have been duly authorized by all
necessary corporate or other action on the part of the Property Trustee and the
Delaware Trustee and do not require any approval of stockholders of the Property
Trustee and such execution, delivery and performance will not (i) violate the
Property Trustee's or the Delaware Trustee's charter or by-laws, (ii) violate
any provision of, or constitute, with or without notice or lapse of time, a
default under, or result in the creation or imposition of, any Lien on any
properties included in the Trust Property pursuant to the provisions of, any
indenture, mortgage, credit agreement, license or other agreement or instrument
to which the Property Trustee or the Delaware Trustee is a party or by which it
is bound, or (iii) violate any law, governmental rule or regulation of the
United States or the State of Delaware, as the case may be, governing the
banking or trust powers of, the Property Trustee or the Delaware Trustee (as
appropriate in context) or any order, judgment or decree applicable to the
Property Trustee or the Delaware Trustee;
(e) neither the authorization, execution or delivery by the Property
Trustee or the Delaware Trustee of this Trust Agreement nor the consummation of
any of the transactions by the Property Trustee or the Delaware Trustee (as
appropriate in context) contemplated herein pursuant to this Trust Agreement
require the consent or approval of, the giving of notice to, the registration
with or the taking of any other action with respect to any governmental
authority or agency under any existing federal law governing the banking or
trust powers of the Property Trustee or under the laws of the United States or
the State of Delaware;
(f) there are no proceedings pending or, to the best of the Property
Trustee's and the Delaware Trustee's knowledge, threatened against or affecting
the Property Trustee or the Delaware Trustee in any court or before any
governmental authority, agency or arbitration board or tribunal which,
individually or in the aggregate, would materially and adversely affect the
Trust or would question the right, power and authority of the Property Trustee
or the Delaware Trustee to enter into or perform its obligations as one of the
Trustees under this Trust Agreement.
ARTICLE VIII
The Trustees
Section 8.01. Certain Duties and Responsibilities.
(a) The duties and responsibilities of the Trustees shall be as provided by
this Trust Agreement and, in the case of the Property Trustee, by the Trust
Indenture Act. The Property Trustee, other than during the occurrence and
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in this Trust Agreement and, after an Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. The Trustees
shall have all the privileges, rights, and immunities provided by the Delaware
Business Trust Act. Notwithstanding the foregoing, no provision of this Trust
Agreement shall require the Trustees to expend or risk their own funds or
otherwise incur any financial liability in the performance of any of their
duties hereunder, or in the exercise of any of their rights or powers, if they
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it. Whether or not therein expressly so provided, every provision of this Trust
Agreement relating to the conduct or affecting the liability of or affording
protection to the Trustees shall be subject to the provisions of this Section.
Nothing in this Trust Agreement shall be construed to release the Property
Trustee from liability for its own negligent action, its own failure to act, or
its own willful misconduct. To the extent that, at law or in equity, an
Administrator has duties (including fiduciary duties) and liabilities relating
thereto to the Trust or to the Securityholders, such Administrator shall not be
liable to the Trust or to any Securityholder for such Trustee's good faith
reliance on the provisions of this Trust Agreement. The provisions of this Trust
Agreement, to the extent that they restrict the duties and liabilities of the
Administrators otherwise existing at law or in equity, are agreed by the
Depositor and the Securityholders to replace such other duties and liabilities
of the Administrators.
(b) All payments made by the Property Trustee or any other Paying Agent in
respect of the Trust Securities shall be made only from the income and proceeds
from the Trust Property. Each Securityholder, by its acceptance of a Trust
Security, agrees that it will look solely to the income and proceeds from the
Trust Property to the extent legally available for distribution to it as herein
provided and that the Trustees are not personally liable to it for any amount
distributable in respect of any Trust Security or for any other liability in
respect of any Trust Security. This Section 8.01(b) does not limit the liability
of the Trustees expressly set forth elsewhere in this Trust Agreement or, in the
case of the Property Trustee, in the Trust Indenture Act.
Section 8.02. Notice of Defaults; Direct Action by Securityholders.
Within ninety days after the occurrence of any Event of Default actually
known to the Property Trustee, the Property Trustee shall transmit, in the
manner and to the extent provided in Section 10.08, notice of such Event of
Default to the Securityholders, the Administrators and the Depositor, unless
such Event of Default shall have been cured or waived. If the Property Trustee
fails to enforce its rights under this Trust Agreement or the Indenture, to the
fullest extent permitted by law and subject to the terms of this Trust
Agreement, any Securityholder may, after such Securityholder's written request
to the Property Trustee to enforce such rights, institute a legal proceeding
directly against any Person to enforce the Property Trustee's rights under this
Trust Agreement or the Indenture without first instituting a legal proceeding
against the Property Trustee or any other Person. In addition, to the extent
that any action under the Indenture is entitled to be taken by the holders of a
specified percentage of the principal amount of the outstanding Debentures,
Holders of the same percentage of the Liquidation Amount of the Outstanding
Capital Securities may also take such action if such action is not taken by the
Property Trustee after written notice from such Holders of a demand for such
action satisfying any requirements of the Indenture or this Trust Agreement,
including the requirements of Section 8.03(d) hereof. To the fullest extent
permitted by law, the foregoing shall be in addition to and not in limitation of
any direct rights provided to the holders of the Capital Securities under the
terms of the Indenture including the right, without any notice or other demand
on the Property Trustee, to institute suit for the enforcement of any payment of
the principal of and any premium and interest on Debentures related to such
series Capital Security as provided in Section 508 of the Indenture.
Section 8.03. Certain Rights of Property Trustee. Subject to the
provisions of Section 8.01.
(a) the Property Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution, Opinion of Counsel,
certificate, written representation of a Holder or transferee, certificate of
auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) if, other than during the occurrence and continuance of an Event of
Default, (i) in performing its duties under this Trust Agreement the Property
Trustee is required to decide between alternative courses of action or (ii) in
construing any of the provisions in this Trust Agreement the Property Trustee
finds the same ambiguous or inconsistent with any other provisions contained
herein or (iii) the Property Trustee is unsure of the application of any
provision of this Trust Agreement, then, except as to any matter as to which the
Capital Securityholders are entitled to vote under the terms of this Trust
Agreement, the Property Trustee shall deliver a notice to the Depositor
requesting written instructions of the Depositor as to the course of action to
be taken. The Property Trustee shall take such action, or refrain from taking
such action, as the Property Trustee shall be instructed in writing to take, or
to refrain from taking, by the Depositor; provided, however, that if the
Property Trustee does not receive such instructions of the Depositor within ten
Business Days after it has delivered such notice, or such reasonably shorter
period of time set forth in such notice (which to the extent practicable shall
not be less than two Business Days), it may, but shall be under no duty to, take
or refrain from taking such action not inconsistent with this Trust Agreement as
it shall deem advisable and in the best interests of the Securityholders, in
which event the Property Trustee shall have no liability except for its own bad
faith, negligence or willful misconduct;
(c) the Property Trustee may consult with counsel or other experts of its
selection and the advice or opinion of such counsel or other experts with
respect to legal matters or advice within the scope of such experts' area of
expertise shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon;
(d) the Property Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Securityholders pursuant to this Trust Agreement, unless
such Securityholders shall have offered to the Property Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(e) the Property Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
approval, bond, debenture, note or other evidence of indebtedness or other paper
or document, but the Property Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit; and
(f) the Property Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through its agents or
attorneys and the Property Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care by it
hereunder.
Section 8.04. Not Responsible for Recitals or Issuance of Securities.
Except as provided in Article VII, the recitals contained herein and in
the Trust Securities Certificates shall be taken as the statements of the Trust,
and the Trustees do not assume any responsibility for their correctness. The
Trustees shall not be accountable for the use or application by the Depositor of
the proceeds of the Debentures.
Section 8.05. May Hold Securities.
Except as provided in the definition of the term "Outstanding" in Article
I, any Trustee or any other agent of any Trustee or the Trust, in its individual
or any other capacity, may become the owner or pledgee of Trust Securities and,
subject to Sections 8.08 and 8.13, may otherwise deal with the Trust with the
same rights it would have if it were not a Trustee or such other agent.
Section 8.06. Compensation; Indemnity; Fees.
The Depositor agrees:
(a) to pay to the Trustees from time to time such compensation as shall
have been agreed in writing with the Depositor for all services rendered by them
hereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustees upon request for all reasonable expenses, disbursements and advances
incurred or made by the Trustees in accordance with any provision of this Trust
Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(c) to indemnify each of the Trustees or any predecessor Trustee for, and
to hold the Trustees harmless against, any and all loss, damage, claims,
liability, penalty or expense including taxes (other than taxes based on the
income of such Trustee) incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of this
Trust Agreement, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder.
No Trustee may claim any Lien or charge on any Trust Property as a result
of any amount due pursuant to this Section 8.06.
The provisions of this Section 8.06 shall survive the termination of this
Trust Agreement.
Section 8.07. Corporate Property Trustee Required; Eligibility of Trustees.
(a) There shall at all times be a Property Trustee hereunder. The Property
Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act
to act as such and has a combined capital and surplus of at least $50,000,000.
If any such Person publishes reports of condition at least annually, pursuant to
law or to the requirements of its supervising or examining authority, then for
the purposes of this Section, the combined capital and surplus of such Person
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time the Property Trustee
with respect to the Trust Securities shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
(b) There shall at all times be one or more Administrators hereunder. Each
Administrator shall be either a natural person who is at least 21 years of age
or a legal entity that shall act through one or more persons authorized to bind
that entity.
(c) There shall at all times be a Delaware Trustee. The Delaware Trustee
shall either be (i) a natural person who is at least 21 years of age and a
resident of the State of Delaware or (ii) a legal entity with its principal
place of business in the State of Delaware and that otherwise meets the
requirements of applicable Delaware law that shall act through one or more
persons authorized to bind such entity.
Section 8.08. Conflicting Interests.
If the Property Trustee has or shall acquire a conflicting interest within
the meaning of the Trust Indenture Act, the Property Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Trust
Agreement.
Section 8.09. Co-Trustees and Separate Trustee.
Unless a Debenture Event of Default shall have occurred and be continuing,
at any time or times, for the purpose of meeting the legal requirements of the
Trust Indenture Act or of any jurisdiction in which any part of the Trust
Property may at the time be located, the Depositor and the Administrators, by
agreed action of the majority of such Trustees, shall have power to appoint, and
upon the written request of the Administrators, the Depositor shall for such
purpose join with the Administrators in the execution, delivery, and performance
of all instruments and agreements necessary or proper to appoint, one or more
Persons approved by the Property Trustee either to act as co-trustee, jointly
with the Property Trustee, of all or any part of such Trust Property, or to the
extent required by law to act as separate trustee of any such property, in
either case with such powers as may be provided in the instrument of
appointment, and to vest in such Person or Persons in the capacity aforesaid,
any property, title, right or power deemed necessary or desirable, subject to
the other provisions of this Section. If the Depositor does not join in such
appointment within 15 days after the receipt by it of a request so to do, or in
case a Debenture Event of Default has occurred and is continuing, the Property
Trustee alone shall have power to make such appointment. Any co-trustee or
separate trustee appointed pursuant to this Section shall either be (i) a
natural person who is at least 21 years of age and a resident of the United
States or (ii) a legal entity with its principal place of business in the United
States that shall act through one or more persons authorized to bond such
entity.
Should any written instrument from the Depositor be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right, or power, any and
all such instruments shall, on request, be executed, acknowledged, and delivered
by the Depositor.
Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following terms,
namely:
(a) The Trust Securities shall be executed and delivered and all rights,
powers, duties, and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustees specified hereunder, shall be exercised,
solely by such Trustees and not by such co-trustee or separate trustee.
(b) The rights, powers, duties, and obligations hereby conferred or
imposed upon the Property Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed by the
Property Trustee or by the Property Trustee and such co-trustee or separate
trustee jointly, as shall be provided in the instrument appointing such
co-trustee or separate trustee, except to the extent that under any law of any
jurisdiction in which any particular act is to be performed, the Property
Trustee shall be incompetent or unqualified to perform such act, in which event
such rights, powers, duties, and obligations shall be exercised and performed by
such co-trustee or separate trustee.
(c) The Property Trustee at any time, by an instrument in writing executed
by it, with the written concurrence of the Depositor, may accept the resignation
of or remove any co-trustee or separate trustee appointed under this Section,
and, in case an Event of Default under the Indenture has occurred and is
continuing, the Property Trustee shall have power to accept the resignation of,
or remove, any such co-trustee or separate trustee without the concurrence of
the Depositor. Upon the written request of the Property Trustee, the Depositor
shall join with the Property Trustee in the execution, delivery, and performance
of all instruments and agreements necessary or proper to effectuate such
resignation or removal. A successor to any co-trustee or separate trustee so
resigned or removed may be appointed in the manner provided in this Section.
(d) No co-trustee or separate trustee hereunder shall be personally liable
by reason of any act or omission of the Property Trustee, or any other trustee
hereunder.
(e) The Property Trustee shall not be liable by reason of any act of
a co-trustee or separate trustee.
(f) Any Act of Holders delivered to the Property Trustee shall be deemed
to have been delivered to each such co-trustee and separate trustee.
Section 8.10. Resignation and Removal; Appointment of Successor.
No resignation or removal of any Trustee and no appointment of a successor
Trustee pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee in accordance with the applicable
requirements of Section 8.11.
Any Trustee may resign at any time with respect to the Trust Securities by
giving written notice thereof to the Securityholders.
Unless a Debenture Event of Default shall have occurred and be continuing,
any Trustee may be removed at any time by Act of the Common Securityholder. If a
Debenture Event of Default shall have occurred and be continuing, the Property
Trustee or the Delaware Trustee, or both of them, may be removed at such time
only by Act of the Holders of a majority in Liquidation Amount of the Capital
Securities, delivered to the Trustee (in its individual capacity and on behalf
of the Trust). An Administrator may be removed by the Holder of Common
Securities at any time.
If the instrument of acceptance by the successor Trustee required by Section
8.11 shall not have been delivered to the Trustee within 30 days after the
giving of such notice of resignation, the Trustee may petition, at the expense
of the Depositor, any court of competent jurisdiction for the appointment of a
successor Trustee.
If any Trustee shall resign or become incapable of acting as Trustee, or if
a vacancy shall occur in the office of any Trustee for any cause, at a time when
no Debenture Event of Default shall have occurred and be continuing, the Holder
of Common Securities, by Act of the Holder of Common Securities delivered to the
retiring Trustee, shall promptly appoint a successor Trustee or Trustees and the
Trust, and the retiring Trustee shall comply with the applicable requirements of
Section 8.11. If the Property Trustee or the Delaware Trustee shall resign or
become incapable of continuing to act as the Property Trustee or the Delaware
Trustee, as the case may be, at a time when a Debenture Event of Default is
continuing, the Holder of Capital Securities, by Act of the Securityholders of a
majority in Liquidation Amount of the Capital Securities then Outstanding
delivered to the retiring Trustee, shall promptly appoint a successor Trustee or
Trustees, and such successor Trustee shall comply with the applicable
requirements of Section 8.11. If an Administrator shall resign or become
incapable of acting as Administrator, at a time when a Debenture Event of
Default shall have occurred and be continuing, the Holder of Common Securities
shall appoint a successor Administrator. If no successor Trustee shall have been
so appointed by the Holder of Common Securities or the Holder Preferred
Securities and accepted appointment in the manner required by Section 8.11, any
Securityholder who has been a Securityholder of Trust Securities for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee.
The Property Trustee shall give notice of each resignation and each
removal of a Trustee and each appointment of a successor Trustee to all
Securityholders in the manner provided in Section 10.08 and shall give notice to
the Depositor. Each notice shall include the name of the successor Trustee and
the address of its Corporate Trust Office if it is the Property Trustee.
Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrator or a Delaware Trustee who is a natural
person dies or becomes, in the opinion of the Depositor, incompetent or
incapacitated, the vacancy created by such death, incompetence or incapacity may
be filled by (a) the unanimous act of the remaining Administrators if there are
at least two of them or (b) otherwise by the Depositor (with the successor in
each case being a Person who satisfies the eligibility requirement for
Administrators set forth in Section 8.07).
Section 8.11. Acceptance of Appointment by Successor.
In case of the appointment hereunder of a successor Trustee, the retiring
Trustee and each successor Trustee with respect to the Trust Securities shall
execute and deliver an amendment hereto wherein each successor Trustee shall
accept such appointment and which (a) shall contain such provisions as shall be
necessary or desirable to transfer and confirm to, and to vest in, each
successor Trustee all the rights, powers, trusts and duties of the retiring
Trustee and (b) shall add to or change any of the provisions of this Trust
Agreement as shall be necessary to provide for or facilitate the administration
of the trusts hereunder by more than one Trustee, it being understood that
nothing herein or in such amendment shall constitute such Trustees co-trustees
of the same trust and that each such Trustee shall be trustee of a trust or
trusts hereunder separate and apart from any trust or trusts hereunder
administered by any other such Trustee and upon the execution and delivery of
such amendment the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee and the Trust; but, on
request of the Trust or any successor Trustee such retiring Trustee shall duly
assign, transfer and deliver to such successor Trustee all Trust Property, all
proceeds thereof and money held by such retiring Trustee hereunder.
Upon request of any such successor Trustee, the Trust shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor Trustee all such rights, powers and trusts referred to in the
first or second preceding paragraph, as the case may be.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 8.12. Merger, Conversion, Consolidation or Succession to Business.
Any Person into which the Property Trustee, the Delaware Trustee or any
Administrator may be merged or converted or with which it may be consolidated,
or any Person resulting from any merger, conversion or consolidation to which
such Trustee shall be a party, or any Person succeeding to all or substantially
all the corporate trust business of such Trustee, shall be the successor of such
Trustee hereunder, provided such Person shall be otherwise qualified and
eligible under this Article, without the execution or filing of any paper or any
further act on the part of any of the parties hereto.
Section 8.13. Preferential Collection of Claims Against Depositor or Trust.
If and when the Property Trustee or the Delaware Trustee shall be or
become a creditor of the Depositor or the Trust (or any other obligor upon the
Debentures or the Trust Securities), the Property Trustee or the Delaware
Trustee, as the case may be, shall be subject to and shall take all actions
necessary in order to comply with the provisions of the Trust Indenture Act
regarding the collection of claims against the Depositor or Trust (or any such
other obligor).
Section 8.14. Reports by Property Trustee.
(a) Within 60 days after May 15 of each year commencing with May 15, 1997
the Property Trustee shall transmit to all Securityholders in accordance with
Section 10.08, and to the Depositor, a brief report dated as of such May 15 with
respect to:
(i) its eligibility under Section 8.07 or, in lieu thereof, if to the
best of its knowledge it has continued to be eligible under said Section, a
written statement to such effect;
(ii) a statement that the Property Trustee has complied with all of
its obligations under this Trust Agreement during the twelve-month period (or,
in the case of the initial report, the period since the Closing Date) ending
with such May 15 or, if the Property Trustee has not complied in any material
respect with such obligations, a description of such non-compliance; and
(iii) any change in the property and funds in its possession as
Property Trustee since the date of its last report and any action taken by the
Property Trustee in the performance of its duties hereunder which it has not
previously reported and which in its opinion materially affects the Trust
Securities.
(b) In addition the Property Trustee shall transmit to Securityholders
such reports concerning the Property Trustee and its actions under this Trust
Agreement as may be required pursuant to the Trust Indenture Act at the times
and in the manner provided pursuant thereto.
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Property Trustee with each stock exchange upon which
the Trust Securities are listed, with the Commission and with the Depositor.
Section 8.15. Reports to the Property Trustee.
The Depositor and the Administrators on behalf of the Trust shall provide
to the Property Trustee such documents, reports and information as required by
Section 314 of the Trust Indenture Act (if any) and the compliance certificate
required by Section 314(a) of the Trust Indenture Act in the form, in the manner
and at the times required by Section 314 of the Trust Indenture Act. Delivery of
such reports, information and documents to the Property Trustee is for
informational purposes only and the Property Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Depositor's
compliance with any of its covenants hereunder (as to which the Property Trustee
is entitled to rely exclusively on Officers' Certificates).
Section 8.16. Evidence of Compliance with Conditions Precedent.
Each of the Depositor and the Administrators on behalf of the Trust shall
provide to the Property Trustee such evidence of compliance with any conditions
precedent, if any, provided for in this Trust Agreement that relate to any of
the matters set forth in Section 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c)(1) of the Trust Indenture Act shall be given in the form of an Officers'
Certificate.
Section 8.17. Number of Trustees.
(a) The number of Trustees shall be five, provided that the Holder of all
of the Common Securities by written instrument may increase or decrease the
number of Administrators.
(b) If a Trustee ceases to hold office for any reason and the number of
Administrators is not reduced pursuant to Section 8.17(a), or if the number of
Trustees is increased pursuant to Section 8.17(a), a vacancy shall occur. The
vacancy shall be filled with a Trustee appointed in accordance with Section
8.10.
(c) The death, resignation, retirement, removal, bankruptcy, incompetence
or incapacity to perform the duties of a Trustee shall not operate to annul the
Trust. Whenever a vacancy in the number of Administrators shall occur, until
such vacancy is filled by the appointment of an Administrator in accordance with
Section 8.10, the Administrators in office, regardless of their number (and
notwithstanding any other provision of this Agreement), shall have all the
powers granted to the Administrators and shall discharge all the duties imposed
upon the Administrators by this Trust Agreement.
Section 8.18. Delegation of Power.
(a) Any Administrator may, by power of attorney consistent with applicable
law, delegate to any natural person over the age of 21 his or her power for the
purpose of executing any documents contemplated in Section 2.07(a), including
any registration statement or amendment thereto filed with the Commission, or
making any other governmental filing; and
(b) the Administrators shall have power to delegate from time to time to
such of their number or to the Depositor the doing of such things and the
execution of such instruments either in the name of the Trust or the names of
the Administrators or otherwise as the Administrators may deem expedient, to the
extent such delegation is not prohibited by applicable law or contrary to the
provisions of the Trust, as set forth herein.
Section 8.19. Voting.
Except as otherwise provided in this Trust Agreement, the consent or vote
of the Trustees shall be approved by not less than a majority of the
Administrators.
ARTICLE IX
Termination and Liquidation
Section 9.01. Termination Upon Expiration Date.
Unless earlier terminated, the Trust shall automatically terminate on
December 31, 2045 (the "Expiration Date"), following the distribution of the
Trust Property in accordance with Section 9.04.
Section 9.02. Early Termination.
The first to occur of any of the following events is an "Early Termination
Event":
(a) the occurrence of a Bankruptcy Event in respect of, or the
dissolution or liquidation of, the Depositor;
(b) the occurrence of a Tax Event or an Investment Company Event (each, a
"Special Event"), or the Trust is not or will not be taxed as a grantor trust
for United States federal income tax purposes but a Tax Event has not occurred
(a "Grantor Trust Event"), and written direction to the Property Trustee from
the Depositor within 90 days of such Special Event or Grantor Trust Event (which
direction is optional and wholly within the discretion of the Depositor) at any
time to terminate the Trust and distribute Debentures to Securityholders in
accordance with Section 9.04 exchange for the Capital Securities; provided,
however, that the Property Trustee shall have first received an Opinion of
Counsel to the effect that such distribution will not be a taxable event to the
Holders;
(c) the redemption of all of the Capital Securities;
(d) an order for dissolution of the Trust shall have been
entered by a court of competent jurisdiction; and
(e) the written direction to the Property Trustee from the Deposition at
any time to terminate the Trust and distribute the Debentures to securityholders
in exchange for Capital Securities; provided, however, that the Property Trustee
shall have first received an Opinion of Counsel to the effect that such
distribution will not be a taxable event to the Holders.
Section 9.03. Termination.
The respective obligations and responsibilities of the Trustees and the
Trust created and continued hereby shall terminate upon the latest to occur of
the following: (a) the distribution by the Property Trustee to Securityholders
upon the liquidation of the Trust pursuant to Section 9.04, or upon the
redemption of all of the Trust Securities pursuant to Section 4.02, of all
amounts required to be distributed hereunder upon the final payment of the Trust
Securities; (b) the payment of any expenses owed by the Trust; and (c) the
discharge of all administrative duties of the Administrators, including the
performance of any tax reporting obligations with respect to the Trust or the
Securityholders.
Section 9.04. Liquidation.
(a) If an Early Termination Event specified in clause (a), (b), (d) or (e)
of Section 9.02 occurs or upon the Expiration Date, the Trust shall be
liquidated by the Trustees as expeditiously as the Trustees determine to be
possible by distributing, after satisfaction of liabilities to creditors of the
Trust as provided by applicable law, to each Securityholder a Like Amount of
Debentures, subject to Section 9.04(d). Notice of liquidation shall be given by
the Property Trustee by first-class mail, postage prepaid, mailed not later than
30 nor more than 60 days prior to the Liquidation Date to each Holder of Trust
Securities at such Holder's address appearing in the Securities Register. All
notices of liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities will no longer be deemed to be outstanding and any Trust Securities
Certificates not surrendered for exchange will be deemed to represent a Like
Amount of Debentures; and
(iii) provide such information with respect to the mechanics by which
Holders may exchange Trust Securities Certificates for certificates evidencing
Debentures, or, if Section 9.04(d) applies, receive a Liquidation Distribution,
as the Administrators or the Property Trustee shall deem appropriate.
(b) Except where Section 9.02(c) or 9.04(d) applies, in order to effect
the liquidation of the Trust and distribution of the Debentures to
Securityholders, the Property Trustee shall establish a record date for such
distribution (which shall be not more than 45 days prior to the Liquidation
Date) and, either itself acting as exchange agent or through the appointment of
a separate exchange agent, shall establish such procedures as it shall deem
appropriate to effect the distribution of Debentures in exchange for the
Outstanding Trust Securities Certificates.
(c) Except where Section 9.02(c) or 9.04(d) applies, after the Liquidation
Date, (i) the Trust Securities will no longer be deemed to be Outstanding, (ii)
certificates representing a Like Amount of Debentures will be issued to Holders
of Trust Securities Certificates, upon surrender of such certificates to the
Administrators or their agent for exchange, (iii) the Depositor shall use its
reasonable efforts to have the Securities listed on the New York Stock Exchange
or such other exchange as the Capital Securities are then listed and shall take
any reasonable action necessary to effect the distribution of the Securities,
(iv) any Trust Securities Certificates not so surrendered for exchange will be
deemed to represent a Like Amount of Debentures, accruing interest at the rate
provided for in the Debentures from the last Distribution Date on which a
Distribution was made on such Trust Certificates until such certificates are so
surrendered (and until such certificates are so surrendered, no payments or
interest or principal will be made to Holders of Trust Securities Certificates
with respect to such Debentures) and (v) all rights of Securityholders holding
Trust Securities will cease, except the right of such Securityholders to receive
Debentures upon surrender of Trust Securities Certificates.
(d) In the event that, notwithstanding the other provisions of this
Section 9.04, whether because of an order for dissolution entered by a court of
competent jurisdiction or otherwise, distribution of the Debentures in the
manner provided herein is determined by the Property Trustee not to be
practical, the Trust Property shall be liquidated, and the Trust shall be
dissolved, wound-up or terminated, by the Property Trustee in such manner as the
Property Trustee determines. In such event, on the date of the dissolution,
winding-up or other termination of the Trust, Securityholders will be entitled
to receive out of the assets of the Trust available for distribution to
Securityholders, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, an amount equal to the Liquidation Amount per Trust
Security plus accrued and unpaid Distributions thereon to the date of payment
(such amount being the "Liquidation Distribution"). If, upon any such
dissolution, winding up or termination, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then, subject to the next succeeding
sentence, the amounts payable by the Trust on the Trust Securities shall be paid
on a pro rata basis (based upon Liquidation Amounts). The Holder of the Common
Securities will be entitled to receive Liquidation Distributions upon any such
dissolution, winding-up or termination pro rata (determined as aforesaid) with
Holders of Capital Securities, except that, if a Debenture Event of Default has
occurred and is continuing, the Capital Securities shall have a priority over
the Common Securities, and no Liquidation Distribution will be paid to the
Holders of the Common Securities unless and until receipt by the Holder of the
Capital Securities of the entire Liquidation Distribution payable in respect
thereof.
ARTICLE X
Miscellaneous Provisions
Section 10.01. Limitation of Rights of Securityholders.
The death or incapacity of any Person having an interest, beneficial or
otherwise, in Trust Securities shall not operate to terminate this Trust
Agreement, nor entitle the legal representatives or heirs of such Person or any
Securityholder for such Person, to claim an accounting, take any action or bring
any proceeding in any court for a partition or winding up of the arrangements
contemplated hereby, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.
Section 10.02. Amendment.
(a) This Trust Agreement may be amended from time to time by the Trustees
and the Depositor, without the consent of any Securityholders, to cure any
ambiguity, defect or inconsistency or make any other change which does not
adversely affect in any material respect the interests of any Holder of Capital
Securities. Any amendments of this Trust Agreement pursuant to Section 10.02(a)
shall become effective when notice thereof is given to the Securityholders.
(b) Except as provided in Section 10.02(a) and 10.02(c) hereof, any
provision of this Trust Agreement may be amended by the Trustees and the
Depositor with the consent of Holders of a majority of the Liquidation Amount of
the Outstanding Capital Securities.
(c) In addition to and notwithstanding any other provision in this Trust
Agreement, without the consent of each affected Securityholder (such consent
being obtained in accordance with Section 6.03 or 6.06 hereof), this Trust
Agreement may not be amended to (i) change the amount, timing, or currency of
any Distribution or Liquidation Distribution on the Trust Securities or
otherwise adversely affect the amount or method of payment of any Distribution
or Liquidation Distribution required to be made in respect of the Trust
Securities as of a specified date; (ii) restrict the right of a Securityholder
to institute suit for the enforcement of any such payment on or after such date;
(iii) modify the first sentence of Section 2.06 hereof; (iv) authorize or issue
any interest in the Trust other than as contemplated by this Trust Agreement as
of the date hereof; (v) change the Redemption Price; or (vi) affect the limited
liability of any Holder of Capital Securities, and notwithstanding any other
provision herein without the unanimous consent of the Securityholders (such
consent being obtained in accordance with Section 6.03 or 6.06 hereof),
paragraphs (b) and (c) of this Section 10.02 may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no
amendment to this Trust Agreement shall be made without receipt by the Trust of
an Opinion of Counsel to the effect that such amendment will not affect the
Trust's status as a grantor trust for United States federal income tax purposes
or its exemption from regulation as an "investment company" under the 1940 Act.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor, this Trust Agreement may not be amended in
a manner which imposes any additional obligation on the Depositor.
(f) In the event that any amendment to this Trust Agreement is made, the
Administrators shall promptly provide to the Depositor a copy of such amendment.
(g) In executing any amendment to the Trust Agreement, the Property
Trustee shall be entitled to receive, and (subject to Section 8.01) shall be
fully protected in relying upon an Opinion of Counsel stating that the execution
of such amendment is authorized or permitted by this Trust Agreement. The
Trustee may, but shall not be obligated to, enter into any amendment to this
Trust Agreement which affects the Trustee's own rights, duties or immunities
under this Trust Agreement or otherwise.
Section 10.03. Separability.
In case any provision in this Trust Agreement or in the Trust Securities
Certificates shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 10.04. Governing Law.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT
AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES.
Section 10.05. Payments Due on Non-Business Day.
If the date fixed for any payment on any Trust Security shall be a day
which is not a Business Day, then such payment need not be made on such date but
may be made on the next succeeding day which is a Business Day (except as
otherwise provided therein, with the same force and effect as though made on the
date fixed for such payment, and no interest shall accrue thereon for the period
after such date.
Section 10.06. Successors.
This Trust Agreement shall be binding upon and shall inure to the benefit
of any successor to the Trust or successor Trustee or both, including any
successor by operation of law.
Section 10.07. Headings.
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement.
Section 10.08. Reports, Notices and Demands.
Any report, notice, demand or other communication which by any provision
of this Trust Agreement is required or permitted to be given or served to or
upon any Securityholder or the Depositor may be given or served in writing by
deposit thereof, first-class postage prepaid, in the United States mail, hand
delivery or facsimile transmission, in each case, addressed, (a) in the case of
a Holder of a Capital Security, to such Holder of a Capital Security as such
Securityholder's name and address may appear on the Securities Register; and (b)
in the case of the Holder of a Common Security or the Depositor, to USF&G
Corporation, 100 Light Street, Baltimore, Maryland 21202, Attention: Treasurer,
facsimile no.: (410) 547-3000. Any notice to Holders of Capital Securities shall
also be given to such Owners as have, within two years preceding the giving of
such notice, filed their names and addresses with the Property Trustee for that
purpose. Such notice, demand or other communication to or upon a Securityholder
shall be deemed to have been sufficiently given or made, for all purposes, upon
hand delivery, mailing or transmission.
Any notice, demand or other communication which by any provision of this
Trust Agreement is required or permitted to be given or served to or upon the
Trust, the Property Trustee or the Administrators shall be given in writing
addressed (until another address is published by the Trust) as follows: (a) with
respect to the Property Trustee to The Bank of New York, 101 Barclay Street.
21W, New York, New York 10286, Attention: Corporate Trust Trustee
Administration; (b) with respect to the Delaware Trustee, to The Bank of New
York (Delaware), White Clay Center, Route 273, Newark, Delaware 19711; and (c)
with respect to the Administrators, to them at the address above for notices to
the Depositor, marked "Attention: Administrators of USF&G Capital II c/o
Treasury Department." Such notice, demand or other communication to or upon the
Trust or the Property Trustee shall be deemed to have been sufficiently given or
made only upon actual receipt of the writing by the Trust or the Property
Trustee.
Section 10.09. Agreement Not to Petition.
Each of the Trustees and the Depositor agree for the benefit of the
Securityholders that, until at least one year and one day after the Trust has
been terminated in accordance with Article IX, they shall not file, or join in
the filing of, a petition against the Trust under any bankruptcy,
reorganization, arrangement, insolvency, liquidation or other similar law
(including, without limitation, the United States Bankruptcy Code)
(collectively, "Bankruptcy Laws") or otherwise join in the commencement of any
proceeding against the Trust under any Bankruptcy Law. In the event the
Depositor or any of the Trustees takes action in violation of this Section
10.09, the Property Trustee agrees, for the benefit of Securityholders, that at
the expense of the Depositor, it shall file an answer with the bankruptcy court
or otherwise properly contest the filing of such petition by the Depositor or
any of the Trustees, as applicable, against the Trust or the commencement of
such action and raise the defense that the Depositor has agreed in writing not
to take such action and should be stopped and precluded therefrom and such other
defenses, if any, as counsel for the Property Trustee or the Trust may assert.
The provisions of this Section 10.09 shall survive the termination of this Trust
Agreement.
Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act.
(a) This Trust Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Trust Agreement and shall, to
the extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a trustee for
the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Trust Agreement by any
of the provisions of the Trust Indenture Act, such required provision shall
control. If any provision of this Trust Agreement modifies or excludes any
provision of the Trust Indenture Act which may be so modified or excluded, the
latter provision shall be deemed to apply to this Trust Agreement as so modified
or excluded, as the case may be.
(d) The application of the Trust Indenture Act to this Trust Agreement
shall not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
Section 10.11. Acceptance of Terms of Trust Agreement, Guarantee and Indenture.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY OR
ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR
FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE
BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST
SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND AGREEMENT
TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND THE
INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH SECURITYHOLDER
AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE
BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND SUCH SECURITYHOLDER
AND SUCH OTHERS.
USF&G CORPORATION
By: /s/ Dan L. Hale
Name: Dan L. Hale
Title: Executive Vice President,
Chief Financial Officer
THE BANK OF NEW YORK,
as Property Trustee
By: /s/ Byron Merino
Name: Byron Merino
Title: Assistant Treasurer
THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee
By: /s/ Joseph G. Ernst
Name: Joseph G. Ernst
Title: Assistant Vice President
/s/ J. Kendall Huber
J. Kendall Huber,
as Administrator
/s/ Toby Slodden
Toby Slodden,
as Administrator
/s/ John Hoffen
John Hoffen,
as Administrator
EXHIBIT A
CERTIFICATE OF TRUST
OF
USF&G CAPITAL II
THIS CERTIFICATE OF TRUST of USF&G Capital II (the "Trust"), dated December
28, 1995, is being duly executed and filed by the undersigned, as trustees, to
form a business trust under the Delaware Business Trust Act (12 Del. C. (S) 3801
et seq.).
(i) Name. The name of the business trust being formed hereby
is USF&G Capital II.
(ii) Delaware Trustee. The name and business address of the trustee of the
Trust with a principal place of business in the State of Delaware are The Bank
of New York (Delaware), White Clay Center, Route 273, Newark, Delaware 19711.
(iii) Counterparts. This Certificate of Trust may be executed in one
or more counterparts, all of which together shall constitute one and the
same instrument.
(iv) Effective Date. This Certificate of Trust shall be effective
as of its filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust, have
executed this Certificate of Trust as of the date first above written.
THE BANK OF NEW YORK,
as Trustee
_______________________________ By_____________________________
- - ----- -----
J. Kendall Huber, as Trustee Name:
-----------------------
Title:
-----------------------
THE BANK OF NEW YORK (DELAWARE),
as Trustee
By_____________________________
-----
Name:
-----------------------
Title:
-----------------------
THIS CERTIFICATE IS NOT TRANSFERABLE
Certificate Number
C-1
Number of Common Securities
---------
Certificate Evidencing Common Securities
of
USF&G Capital II
__% Common Securities
(liquidation amount $1,000 per Common Security)
USF&G Capital II, a statutory business trust created under the laws of the
State of Delaware (the "Trust"), hereby certifies that USF&G Corporation (the
"Holder") is the registered owner of ____________________ (_______) common
securities of the Trust representing undivided beneficial interests in the
assets of the Trust and designated the __% Common Securities (liquidation amount
$1,000 per Common Security) (the "Common Securities"). In accordance with
Section 5.10 of the Trust Agreement (as defined below) the Common Securities are
not transferable and any attempted transfer hereof shall be void. The
designations, rights, privileges, restrictions, preferences and other terms and
provisions of the Common Securities are set forth in, and this certificate and
the Common Securities represented hereby are issued and shall in all respects be
subject to the terms and provisions of, the Amended and Restated Trust Agreement
of the Trust dated as of January __, 1997, as the same may be amended from time
to time (the "Trust Agreement"). The Trust will furnish a copy of the Trust
Agreement to the Holder without charge upon written request to the Trust at its
principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust Agreement
and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, at least one of the Administrators of the Trust has
executed this certificate this ___ day of January, 1997.
USF&G CAPITAL II
By:
Name: J. Kendall Huber
Administrator
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT dated as of January __, 1997, between USF&G Corporation, a
Maryland Corporation ("USF&G"), and USF&G Capital II, a Delaware business trust
(the "Trust").
WHEREAS, the Trust intends to issue and sell ___% Capital Securities, Series
A (the "Capital Securities") with such powers, preferences and special rights
and restrictions as are set forth in the Amended and Restated Trust Agreement of
the Trust dated as of January __, 1997, as the same may be amended from time to
time (the "Trust Agreement") and purchase debentures from USF&G (the
"Debentures");
NOW, THEREFORE, in consideration of the purchase by each holder of the Capital
Securities, the proceeds from which shall be used to purchase the Debentures,
which purchase USF&G hereby agrees shall benefit USF&G and which purchase USF&G
acknowledges will be made in reliance upon the execution and delivery of this
Agreement, USF&G and the Trust hereby agree as follows:
ARTICLE I
Section 1.01. Guarantee by USF&G. Subject to the terms and conditions hereof,
USF&G hereby irrevocably and unconditionally guarantees to each person or entity
to whom the Trust is now or hereafter becomes indebted or liable (the
"Beneficiaries") the full payment, when and as due, of any and all Obligations
(as hereinafter defined) to such Beneficiaries. As used herein, "Obligations"
means any costs, expenses or liabilities of the Trust, other than obligations of
the Trust to pay to holders of any Capital Securities the amounts due such
holders pursuant to the terms of the Capital Securities. This Agreement is
intended to be for the benefit of, and to be enforceable by, all such
Beneficiaries, whether or not such Beneficiaries have received notice hereof.
Section 1.02. Term of Agreement. This Agreement shall terminate and be of no
further force and effect upon the later of (a) the date on which full payment
has been made of all amounts payable to all holders of all the Capital
Securities (whether upon redemption, liquidation, exchange or otherwise) and (b)
the date on which there are no Beneficiaries remaining; provided, however, that
this Agreement shall continue to be effective or shall be reinstated, as the
case may be, if at any time any holder of Capital Securities or any Beneficiary
must restore payment of any sums paid under the Capital Securities, under any
Obligation, under the Guarantee Agreement dated the date hereof by USF&G and The
Bank of New York as guarantee trustee or under this Agreement for any reason
whatsoever. This Agreement is continuing, irrevocable, unconditional and
absolute.
Section 1.03. Waiver of Notice. USF&G hereby waives notice of acceptance of
this Agreement and of any Obligation to which it applies or may apply, and USF&G
hereby waives presentment, demand for payment, protest, notice of nonpayment,
notice of dishonor, notice of redemption and all other notices and demands.
Section 1.04. No Impairment. The obligations, covenants, agreements and
duties of USF&G under this Agreement shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:
(a) the extension of time for the payment by the Trust of all or any portion
of the Obligations or for the performance of any other obligation under, arising
out of, or in connection with, the Obligations;
(b) any failure, omission, delay or lack of diligence on the part of the
Beneficiaries to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Beneficiaries with respect to the Obligations or any
action on the part of the Trust granting indulgence or extension of any kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust.
There shall be no obligation of the Beneficiaries to give notice to, or
obtain the consent of, USF&G with respect to the happening of any of the
foregoing.
Section 1.05. Enforcement. A Beneficiary may enforce this Agreement directly
against USF&G and USF&G waives any right or remedy to require that any action be
brought against the Trust or any other person or entity before proceeding
against USF&G.
ARTICLE II
Section 2.01. Binding Effect. All guarantees and agreements contained in this
Agreement shall bind the successors, assigns, receivers, trustees and
representatives of USF&G and shall inure to the benefit of the Beneficiaries.
Section 2.02. Amendment. So long as there remains any Beneficiary or any
Capital Securities are outstanding, this Agreement shall not be modified or
amended in any manner adverse to such Beneficiary or to the holders of the
Capital Securities.
Section 2.03. Notices. Any notice, request or other communication required
or permitted to be given hereunder shall be given in writing by delivering the
same against receipt therefor by facsimile transmission (confirmed by mail),
telex or by registered or certified mail, addressed as follows (and if so given,
shall be deemed given when mailed or upon receipt of an answer-back, if sent by
telex):
USF&G Capital II
c/o USF&G Corporation
100 Light Street
Baltimore, Maryland 21202
Facsimile No.: (410) 547-3700
Attention: Treasurer
USF&G Corporation
100 Light Street
Baltimore, Maryland 21202
Facsimile No.: (410) 547-3700
Attention: Treasurer
Section 2.04 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.
THIS AGREEMENT is executed as of the day and year first above written.
USF&G CORPORATION
By:
-
Name:
Title:
USF&G CAPITAL II
By:
-
Name: J. Kendall Huber
Administrator
Certificate Number
--
Number of Capital Securities
CUSIP NO. __________
Certificate Evidencing Capital Securities
of
USF&G Capital II
____% Capital Securities,
Series B
(liquidation amount $1,000 per Capital Security)
USF&G Capital II, a statutory business trust created under the laws of the
State of Delaware (the "Trust"), hereby certifies that Cede & Co. (the "Holder")
is the registered owner of one hundred thousand (100,000) capital securities of
the Trust representing an undivided beneficial interest in the assets of the
Trust and designated the USF&G Capital II __% Capital Securities, Series B
(liquidation amount $1,000 per Capital Security) (the "Capital Securities"). The
Capital Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer as provided in Section 5.04 of the
Trust Agreement (as defined below). The designations, rights, privileges,
restrictions, preferences and other terms and provisions of the Capital
Securities are set forth in, and this certificate and the Capital Securities
represented hereby are issued and shall in all respects be subject to the terms
and provisions of, the Amended and Restated Trust Agreement of the Trust dated
as of January __, 1997, as the same may be amended from time to time (the "Trust
Agreement") including the designation of the terms of Capital Securities as set
forth therein. The Holder is entitled to the benefits of the Guarantee Agreement
entered into by USF&G Corporation, a Maryland corporation, and The Bank of New
York as guarantee trustee, dated as of January __, 1997 (the "Guarantee") to the
extent provided therein. The Trust will furnish a copy of the Trust Agreement
and the Guarantee to the Holder without charge upon written request to the Trust
at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust Agreement
and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, at least one of the Administrators of the Trust has
executed this certificate this __th day of January, 1997.
USF&G CAPITAL II
By:
-
Name: J. Kendall Huber
Administrator
This Capital Security is a Book-Entry Capital Securities Certificate within the
meaning of the Trust Agreement hereinafter referred to and is registered in the
name of The Depository Trust Company (the "Depository") or a nominee of the
Depository. This Capital Security is exchangeable for Capital Securities
registered in the name of a person other than the Depository or its nominee only
in the limited circumstances described in the Trust Agreement and no transfer of
this Capital Security (other than a transfer of this Capital Security as a whole
by the Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository) may be
registered except in limited circumstances.
Unless this Capital Security is presented by an authorized representative of The
Depository Trust Company, a New York corporation, (55 Water Street, New York) to
USF&G Capital II or its agent for registration of transfer, exchange or payment,
and any Capital Security issued is registered in the name of Cede & Co. or such
other name as requested by an authorized representative of The Depository Trust
Company and any payment hereon is made to Cede & Co. or to such other entity as
is requested by an authorized representative of The Depository Trust Company,
ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security
to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints
agent to transfer this Capital Security Certificate on the books of the Trust.
The agent may substitute another to act for him or her.
Date:
Signature:
(Sign exactly as your name appears on the other side of this
Capital Security Certificate)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE>
USF&G CORPORATION
To
THE BANK OF NEW YORK
Trustee
Indenture
Dated as of January 10, 1997
TABLE OF CONTENTS
Recitals of the Company 1
ARTICLE ONE
Definitions and Other Provisions of General Application
Section 101. Definitions 1
Act 2
Additional Interest 2
Affiliate 2
Authenticating Agent 2
Board of Directors 2
Board Resolution 2
Business Day 2
Capital Securities 2
Commission 2
Common Security 3
Company 3
Company Request 3
Company Order 3
Corporate Trust Office 3
Corporation 3
Defaulted Interest 3
Depositary 3
Event of Default 3
Exchange Act 3
Extension Period 3
Global Security 3
Guarantee 3
Hedging Obligations 3
Holder 4
Indebtedness 4
Indenture 4
Intercompany Indebtedness 4
Interest 4
Interest Payment Date 4
Junior Subordinated Payment 5
Maturity 5
Notice of Default 5
Officers' Certificate 5
Opinion of Counsel 5
Original Issue Discount Security 5
Outstanding 5
Paying Agent 6
Person 6
Place of Payment 6
Predecessor Security 6
Proceeding 6
Redemption Date 6
Redemption Price 6
Regular Record Date 7
Responsible Officer 7
Securities 7
Securities Act 7
Security Register and Security Registrar 7
Senior Indebtedness 7
Special Record Date 8
Stated Maturity 8
Subsidiary 8
Trust Agreement 8
Trust Indenture Act 8
Trustee 8
U.S. Government Obligations 8
Vice President 9
Section 102. Compliance Certificates and Opinions 9
Section 103. Form of Documents Delivered to Trustee 9
Section 104. Acts of Holders; Record Dates 10
Section 105. Notices, Etc., to Trustee and Company 11
Section 106. Notice to Holders; Waiver 11
Section 107. Conflict with Trust Indenture Act 12
Section 108. Effect of Headings and Table of Contents 12
Section 109. Successors and Assigns 12
Section 110. Separability Clause 12
Section 111. Benefits of Indenture 12
Section 112. Governing Law 12
Section 113. Legal Holidays 13
Section 114. Personal Immunity from Liability for Incorporators,
Stockholders, Etc. 13
ARTICLE TWO
Security Forms
Section 201. Forms Generally 13
Section 202. Form of Legend for Global Securities 14
Section 203. Form of Trustee's Certificate of Authentication 14
ARTICLE THREE
The Securities
Section 301. Amount Unlimited; Issuable in Series 14
Section 302. Denominations 17
Section 303. Execution, Authentication, Delivery and Dating 17
Section 304. Temporary Securities 19
Section 305. Registration; Registration of Transfer and Exchange 19
Section 306. Mutilated, Destroyed, Lost and Stolen Securities 21
Section 307. Payment of Interest; Interest Rights Preserved 22
Section 308. Persons Deemed Owners 23
Section 309. Cancellation 24
Section 310. Computation of Interest 24
Section 311. CUSIP Numbers 24
ARTICLE FOUR
Satisfaction and Discharge
Section 401. Satisfaction and Discharge of Indenture 25
Section 402. Application of Trust Money 26
ARTICLE FIVE
Remedies
Section 501. Events of Default 26
Section 502. Acceleration of Maturity; Rescission and Annulment 28
Section 503. Collection of Indebtedness and Suits for Enforcement
by Trustee 29
Section 504. Trustee May File Proofs of Claim 29
Section 505. Trustee May Enforce Claims Without Possession of Securities 30
Section 506. Application of Money Collected 30
Section 507. Limitation on Suits 31
Section 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest 32
Section 509. Restoration of Rights and Remedies 32
Section 510. Rights and Remedies Cumulative 32
Section 511. Delay or Omission Not Waiver 32
Section 512. Control by Holders 33
Section 513. Waiver of Past Defaults 33
Section 514. Undertaking for Costs 34
Section 515. Waiver of Stay or Extension Laws 34
ARTICLE SIX
The Trustee
Section 601. Certain Duties and Responsibilities 35
Section 602. Notice of Defaults 35
Section 603. Certain Rights of Trustee 35
Section 604. Not Responsible for Recitals or Issuance of Securities 37
Section 605. May Hold Securities 37
Section 606. Money Held in Trust 37
Section 607. Compensation and Reimbursement 37
Section 608. Conflicting Interests 38
Section 609. Corporate Trustee Required; Eligibility 38
Section 610. Resignation and Removal; Appointment of Successor 39
Section 611. Acceptance of Appointment by Successor 40
Section 612. Merger, Conversion, Consolidation or Succession to Business 41
Section 613. Preferential Collection of Claims Against Company 41
Section 614. Appointment of Authenticating Agent 42
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
Section 701. Company to Furnish Trustee Names and Addresses of Holders 43
Section 702. Preservation of Information; Communications to Holders 44
Section 703. Reports by Trustee 44
Section 704. Reports by Company 44
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
Section 801. Company May Consolidate, Etc., Only on Certain Terms 45
Section 802. Successor Substituted 46
ARTICLE NINE
Supplemental Indentures
Section 901. Supplemental Indentures Without Consent of Holders 46
Section 902. Supplemental Indentures With Consent of Holders 47
Section 903. Execution of Supplemental Indentures 49
Section 904. Effect of Supplemental Indentures 49
Section 905. Conformity with Trust Indenture Act 49
Section 906. Reference in Securities to Supplemental Indentures 49
ARTICLE TEN
Covenants
Section 1001. Payment of Principal, Premium and Interest 50
Section 1002. Maintenance of Office or Agency 50
Section 1003. Money for Securities Payments to Be Held in Trust 50
Section 1004. Statement by Officers as to Default 51
Section 1005. Additional Covenants 52
Section 1006. Waiver of Certain Covenants 53
Section 1007. Calculation of Original Issue Discount 53
ARTICLE ELEVEN
Redemption of Securities
Section 1101. Applicability of Article 53
Section 1102. Election to Redeem; Notice to Trustee 53
Section 1103. Selection by Trustee of Securities to Be Redeemed 54
Section 1104. Notice of Redemption 54
Section 1105. Deposit of Redemption Price 55
Section 1106. Securities Payable on Redemption Date 55
Section 1107. Securities Redeemed in Part 56
ARTICLE TWELVE
Sinking Funds
Section 1201. Applicability of Article 56
Section 1202. Satisfaction of Sinking Fund Payments with Securities 56
Section 1203. Redemption of Securities for Sinking Fund 57
ARTICLE THIRTEEN
Subordination of Securities
Section 1301. Securities Subordinate to Senior Indebtedness 57
Section 1302. Payment over of Proceeds Upon Dissolution, Etc. 57
Section 1303. Prior Payment to Senior Indebtedness Upon Acceleration
of Securities 59
Section 1304. No Payment When Senior Indebtedness in Default 59
Section 1305. Payment Permitted if No Default 60
Section 1306. Subrogation to Rights of Holders of Indebtedness 60
Section 1307. Provisions Solely to Define Relative Rights 61
Section 1308. Trustee to Effectuate Subordination 61
Section 1309. No Waiver of Subordination Provisions 62
Section 1310. Notice to Trustee 62
Section 1311. Reliance on Judicial Order or Certificate of Liquidating Agent 63
Section 1312. Trustee Not Fiduciary For Holders of Senior Indebtedness 63
Section 1313. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights 64
Section 1314. Article Applicable to Paying Agents 64
Testimonium 65
Signatures and Seals 65
INDENTURE, dated as of January 10, 1997, between USF&G CORPORATION, a
corporation duly organized and existing under the laws of the State of Maryland
(herein called the "Company"), having its principal office at 100 Light Street,
Baltimore, Maryland 21202, and THE BANK OF NEW YORK, a corporation duly
organized and existing under the laws of the State of New York, as Trustee
(herein called the "Trustee").
Recitals of the Company
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its junior
subordinated debentures (herein called the "Securities"), to be issued in one or
more series to evidence the loans to be made to the Company of the proceeds from
the issuance from time to time by one or more business trusts (each a "Trust"
and, collectively, the "Trusts") of preferred trust interests in such Trusts
(the "Capital Securities") and common trust interests in such Trusts (the
"Common Securities").
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
Now, Therefore, This Indenture Witnesseth:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually agreed, for the equal and proportionate
benefit of all Holders of the Securities or of series thereof, as follows:
ARTICLE ONE
Definitions and Other Provisions of General Application
Section 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to them in
this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting
principles;
(4) unless the context otherwise requires, any reference to an "Article"
or a "Section" refers to an Article or a Section, as the case may be,
of this Indenture; and
(5) the words "herein", "hereof" and "hereunder" and other words of similar
import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning specified in
Section 104.
"Additional Interest" has the meaning specified in Section 301.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 614 to act on behalf of the Trustee to authenticate Securities of one
or more series.
"Board of Directors" means either (i) the board of directors of the
Company, the executive committee of such board of directors or any other duly
authorized committee of directors and/or officers appointed by such board of
directors or executive committee, or (ii) one or more duly authorized officers
of the Company to whom the board of directors of the Company or a committee
thereof has delegated the authority to act with respect to the matters
contemplated by this Indenture.
"Board Resolution" means (i) a copy of a resolution certified by the
Corporate Secretary or an Assistant Corporate Secretary of the Company to have
been duly adopted by the Board of Directors and to be in full force and effect
on the date of such certification or (ii) a certificate signed by the authorized
officer or officers of the Company to whom the board of directors of the Company
or a committee thereof has delegated its authority (as described in the
definition of Board of Directors), and in each case, delivered to the Trustee.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day
on which banking institutions in The City of New York are authorized or
obligated by law or executive order to remain closed, or (c) a day on which the
Corporate Trust Office is closed for business.
"Capital Securities" has the meaning stated in the first recital of this
Indenture.
"Commission" means the Securities and Exchange Commission, from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Security" has the meaning stated in the first recital of this
Indenture.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by (i) any two of the following individuals:
the Chairman, the President, an Executive Vice President or a Vice President, or
(ii) by one of the foregoing individuals and by any other Vice President, the
Treasurer, an Assistant Treasurer, the Corporate Secretary or an Assistant
Corporate Secretary, or any other individual authorized by the Board of
Directors for such purpose, and delivered to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee in New
York, New York at which at any particular time its corporate trust business
shall be administered, which at the date hereof is 101 Barclay Street, 21 West,
New York, New York 10286.
"Corporation" means a corporation, association, company, joint-stock
company or business trust or other similar entity.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means, with respect to Securities of any series issuable in
whole or in part in the form of one or more Global Securities, a clearing agency
registered under the Exchange Act that is designated to act as Depositary for
such Securities as contemplated by Section 301.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934 and any statute
successor thereto, in each case as amended from time to time.
"Extension Period" has the meaning specified in Section 301.
"Global Security" means a Security that evidences all or part of the
Securities of any series and bears the legend set forth in Section 202 (or such
legend as may be specified as contemplated by Section 301 for such Securities).
"Guarantee" means any guarantee that the Company may enter into with a
Trust for the benefit of holders of Capital Securities of such Trust.
"Hedging Obligations" means, with respect to any Person, all obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) foreign exchange contracts,
currency swap agreements or similar agreements, and (iii) other agreements or
arrangements designed to protect such Person against fluctuations, or otherwise
to establish financial hedges in respect of, exchange rates, currency rates or
interest rates.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indebtedness" means (without duplication and without regard to any portion
of principal amount that has not accrued and to any interest component thereof
(whether accrued or imputed) that is not due and payable) with respect to any
Person, whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (i) every obligation of such Person for money
borrowed, (ii) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses, (iii) every
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business), (v) every
capital lease obligation of such Person, (vi) every Hedging Obligation, (vii)
every obligation of others secured by a lien on any asset of such Person,
whether or not such obligation is assumed by such Person, (viii) every
obligation of the type referred to in clauses (i) through (vii) of another
Person and all dividends of another Person the payment of which, in either case,
such Person has guaranteed or is responsible or liable, directly or indirectly,
as obligor or otherwise, and (ix) any and all deferrals, renewals, extensions
and refundings of, or amendments, modifications or supplements to any liability
of the kind described in any of the preceding clauses (i) through (viii).
"Indenture" means this instrument as originally executed and as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this instrument and any such supplemental indenture, respectively. The term
"Indenture" shall also include the terms of particular series of Securities
established as contemplated by Section 301.
"Intercompany Indebtedness" means Indebtedness of the Company to any of its
directly or indirectly owned Subsidiaries.
"Interest", when used with respect to an Original Issue Discount Security
which by its terms bears interest only after Maturity, means interest payable
after Maturity.
"Interest Payment Date", when used with respect to any Security, means the
Stated Maturity of an installment of interest on such Security.
"Junior Subordinated Payment" has the meaning specified in Section 1302.
"Maturity", when used with respect to any Security, means the date on which
the principal of such Security or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Notice of Default" means a written notice of the kind specified in
Section 501(4).
"Officers' Certificate" means a certificate signed by (i) any two of the
following individuals: the Chairman, the President, an Executive Vice President
or a Vice President, or (ii) by one of the foregoing individuals and by any
other Vice President, the Treasurer, an Assistant Treasurer, the Corporate
Secretary or an Assistant Corporate Secretary, or any other individual
authorized by the Board of Directors for such purpose, and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of legal counsel, who may be
legal counsel for the Company, and who shall be reasonably satisfactory to the
Trustee.
"Original Issue Discount Security" means any Security which provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(1) Securities theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(2) Securities for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying
Agent (other than the Company) in trust or set aside and segregated in
trust by the Company (if the Company shall act as its own Paying Agent)
for the Holders of such Securities; provided that, if such Securities
are to be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made; and
(3) Securities which have been paid pursuant to Section 306 or in exchange
for or in lieu of which other Securities have been authenticated and
delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide
purchaser in whose hands such Securities are valid obligations of the
Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given, made or taken any
request, demand, authorization, direction, notice, consent, waiver or other
action hereunder as of any date, (A) the principal amount of an Original Issue
Discount Security which shall be deemed to be Outstanding shall be the amount of
the principal thereof which would be due and payable as of such date upon
acceleration of the Maturity thereof to such date pursuant to Section 502, (B)
the principal amount of a Security denominated in one or more foreign currencies
or currency units which shall be deemed to be Outstanding shall be the U.S.
dollar equivalent, determined as of such date in the manner provided as
contemplated by Section 301, of the principal amount of such Security (or, in
the case of a Security described in Clause (A) above, of the amount determined
as provided in such Clause), and (C) Securities owned by the Company or any
other obligor upon the Securities or any Affiliate of the Company or of such
other obligor (other than a Trust to which such Securities have been issued)
shall be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent, waiver or other
action, only Securities which the Trustee actually knows to be so owned shall be
so disregarded. Securities so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities or any
Affiliate of the Company or of such other obligor (other than a Trust to which
such Securities have been issued).
"Paying Agent" means any Person authorized by the Company to pay the
principal of or any premium or interest on any Securities on behalf of the
Company.
"Person" means any individual, Corporation, partnership, joint venture,
trust, limited liability company, unincorporated organization or government or
any agency or political subdivision thereof.
"Place of Payment", when used with respect to the Securities of any series,
means the place or places where the principal of and any premium and interest on
the Securities of that series are payable as specified as contemplated by
Section 301.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Proceeding" has the meaning specified in Section 1302.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
on the Securities of any series means the date specified for that purpose as
contemplated by Section 301.
"Responsible Officer", when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Securities" has the meaning stated in the first recital of this Indenture
and more particularly means any Securities authenticated and delivered under
this Indenture.
"Securities Act" means the Securities Act of 1933 and any statute successor
thereto, in each case as amended from time to time.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"Senior Indebtedness" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company to the
extent that such claim for post-petition interest is allowed in such proceeding)
payable on, and fees, expenses, reimbursement obligations, indemnity obligations
and other amounts due on or in connection with, any Indebtedness incurred,
assumed or guaranteed by the Company, whether on or prior to the date of the
Indenture or thereafter incurred, assumed or guaranteed, unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are not superior in right of
payment to the Securities or to other Indebtedness which is pari passu with the
Securities. Without limiting the generality of the foregoing, Senior
Indebtedness shall include (i) the Company's Zero Coupon Convertible
Subordinated Notes due 2009 and (ii) Intercompany Indebtedness, but does not
include the Company's 8 1/2% Deferrable Interest Junior Subordinated Debentures,
Series A (which shall rank pari passu with the Securities).
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security as the fixed date on which the principal of such Security or
such installment of principal or interest is due and payable.
"Subsidiary" means, at any time, a Corporation more than 50% of the
outstanding voting stock of which is owned, directly or indirectly, at such time
by the Company or by one or more other Subsidiaries, or by the Company and one
or more other Subsidiaries. For the purposes of this definition, "voting stock"
means stock which ordinarily has voting power for the election of directors,
whether at all times or only so long as no senior class of stock has such voting
power by reason of any contingency.
"Trust Agreement" means any agreement establishing a Trust, as the same may
be amended, modified, supplemented or restated.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder, and if at any time there is
more than one such Person, "Trustee" as used with respect to the Securities of
any series shall mean the Trustee with respect to Securities of that series.
"U.S. Government Obligations", means securities that are (x) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
of or interest on the U.S. Government Obligation evidenced by such depository
receipt.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
Section 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of an
Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirements set forth in
this Indenture.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include,
(1) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether, in the opinion of each such individual, such
condition or covenant has been complied with.
Section 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 104. Acts of Holders; Record Dates.
Any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by this Indenture to be given, made or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which the Trustee deems sufficient.
The Company may, in the circumstances permitted by the Trust Indenture Act,
fix any day as the record date for the purpose of determining the Holders
entitled to give or take any request, demand, authorization, direction, notice,
consent, waiver or other action, or to vote on any action, authorized or
permitted to be given or taken by Holders. If not set by the Company prior to
the first solicitation of a Holder made by any Person in respect of any such
action, or, in the case of any such vote, prior to such vote, the record date
for any such action or vote shall be the 30th day (or, if later, the date of the
most recent lists of Holders required to be provided pursuant to Section 701)
prior to such first solicitation or vote, as the case may be. With regard to any
record date, only the Holders on such date (or their duly designated proxies)
shall be entitled to give or take, or vote on, the relevant action.
The ownership of Securities shall be proved by the Security Register.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
Section 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing to or with
the Trustee at its Corporate Trust Office, Attention: Corporate Trust
Administration, or
(2) the Company by the Trustee or by any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to the Company addressed to it
at the address of its principal office specified in the first paragraph of this
instrument or at any other address previously furnished in writing to the
Trustee by the Company.
Section 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
If by reason of the suspension of regular mail service or by reason of any
other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
Section 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act which is required under such Act to be a part of and
govern this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any provision of the Trust Indenture Act
which may be so modified or excluded, the latter provision shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.
Section 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
Section 110. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness and the Holders, any benefit or
any legal or equitable right, remedy or claim under this Indenture.
Section 112. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the law of the State of New York without regard to the conflict
of law principles thereof.
Section 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or of the Securities (other than a provision
of any Security which specifically states that such provision shall apply in
lieu of this Section)) payment of interest or principal (and premium, if any)
need not be made on such date, but may be made on the next succeeding Business
Day (except that, if such Business Day is in the next succeeding calendar year,
such Interest Payment Date, Redemption Date or Stated Maturity, as the case may
be, shall be the immediately preceding Business Day) with the same force and
effect as though made on the Interest Payment Date or Redemption Date, or at the
Stated Maturity, and no interest shall accrue thereon for the period after such
Interest Payment Date, Redemption Date or Stated Maturity.
Section 114. Personal Immunity from Liability for Incorporators,
Stockholders, Etc.
No recourse shall be had for the payment of the principal or premium, of
any, or interest, if any, on any Security, or for any claim based thereon, or
otherwise in respect of any Security, or based on or in respect of this
Indenture or any indenture supplemental hereto, against any incorporator, or
against any past, present or future stockholder, director or officer, as such,
of the Company or of any successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise, all such liability being expressly waived and released as
a condition of, and as consideration for, the execution of this Indenture and
the issue of Securities.
ARTICLE TWO
Security Forms
Section 201. Forms Generally.
The Securities of each series shall be in substantially the form
established by or pursuant to a Board Resolution or in one or more indentures
supplemental hereto, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply
with the rules of any securities exchange or Depositary therefor or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution thereof. If the form of Securities of any series
is established by action taken pursuant to a Board Resolution, a copy of an
appropriate record of such action shall be certified by the Secretary or an
Assistant Secretary of the Company and delivered to the Trustee at or prior to
the delivery of the Company Order contemplated by Section 303 for the
authentication and delivery of such Securities.
The definitive Securities shall be printed, lithographed or engraved on
steel engraved borders or may be produced in any other manner, all as determined
by the officers executing such Securities, as evidenced by their execution of
such Securities.
Section 202. Form of Legend for Global Securities.
Unless otherwise specified as contemplated by Section 301 for the
Securities evidenced thereby, every Global Security authenticated and delivered
hereunder shall bear a legend in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A
SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE
REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE
THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
Section 203. Form of Trustee's Certificate of Authentication.
The Trustee's certificates of authentication shall be in substantially the
following form:
This is one of the Securities referred to in the within-mentioned
Indenture.
THE BANK OF NEW YORK,
As Trustee
By
Authorized Signatory
ARTICLE THREE
The Securities
Section 301. Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution and, subject to Section 303,
set forth in an Officers' Certificate, or established in one or more indentures
supplemental hereto, prior to the issuance of Securities of any series,
(1) the title of the Securities of the series (which shall distinguish the
Securities of the series from Securities of any other series);
(2) any limit upon the aggregate principal amount of the Securities of the
series which may be authenticated and delivered under this Indenture (except for
Securities authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities of the series pursuant to Section
304, 305, 306, 906 or 1107 and except for any Securities which, pursuant to
Section 303, are deemed never to have been authenticated and delivered
hereunder);
(3) the Person to whom any interest on a Security of the series shall be
payable, if other than the Person in whose name that Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest;
(4) the date or dates on which the principal of any Securities of the
series is payable, and the circumstances under which such date or dates may be
extended;
(5) the rate or rates at which any Securities of the series shall bear
interest, if any, the extent to which additional interest amounts ("Additional
Interest"), if any, shall be payable in respect of any Securities of such
series, the date or dates from which any such interest shall accrue, the
Interest Payment Dates on which any such interest shall be payable, the Regular
Record Date for any such interest payable on any Interest Payment Date and the
right, if any, of the Company to extend the interest payment periods and the
duration of such extension (an "Extension Period");
(6) the place or places where the principal of, premium and interest on any
Securities of the series shall be payable;
(7) the period or periods within which, the price or prices at which and
the terms and conditions upon which any Securities of the series may be
redeemed, in whole or in part, at the option of the Company and, if other than
by a Board Resolution, the manner in which any election by the Company to redeem
the Securities shall be evidenced;
(8) the obligation, if any, of the Company to redeem or purchase any
Securities of the series pursuant to any sinking fund or analogous provisions or
at the option of the Holder thereof and the period or periods within which, the
price or prices at which and the terms and conditions upon which any Securities
of the series shall be redeemed or purchased, in whole or in part, pursuant to
such obligation;
(9) if other than denominations of $25.00 and any integral multiple
thereof, the denominations in which any Securities of the series shall be
issuable;
(10) if the amount of principal of, premium or interest on any Securities
of the series may be determined with reference to an index or pursuant to a
formula, the manner in which such amounts shall be determined;
(11) if other than the currency of the United States of America, the
currency, currencies or currency units in which the principal of or premium or
interest on any Securities of the series shall be payable and the manner of
determining the equivalent thereof in the currency of the United States of
America for any purpose, including for purposes of the definition of
"Outstanding" in Section 101;
(12) if the principal of or any premium or interest on any Securities of
the series is to be payable, at the election of the Company or the Holder
thereof, in one or more currencies or currency units other than that or those in
which such Securities are stated to be payable, the currency, currencies or
currency units in which the principal of or any premium or interest on such
Securities as to which such election is made shall be payable, the periods
within which and the terms and conditions upon which such election is to be made
and the amount so payable (or the manner in which such amount shall be
determined);
(13) if other than the entire principal amount thereof, the portion of the
principal amount of any Securities of the series which shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section 502;
(14) if applicable, that any Securities of the series shall be issuable in
whole or in part in the form of one or more Global Securities and, in such case,
the respective Depositaries for such Global Securities, the form of any legend
or legends which shall be borne by any such Global Security in addition to or in
lieu of that set forth in Section 202 and any circumstances in addition to or in
lieu of those set forth in Clause (2) of the last paragraph of Section 305 in
which any such Global Security may be exchanged in whole or in part for
Securities registered, and any transfer of such Global Security in whole or in
part may be registered, in the name or names of Persons other than the
Depositary for such Global Security or a nominee thereof;
(15) any addition to or change in the Events of Default which applies to
any Securities of the series and any change in the right of the Trustee or the
requisite Holders of such Securities to declare the principal amount thereof due
and payable pursuant to Section 502;
(16) any addition to or change in the covenants set forth in Article Ten
which applies to Securities of the series; and
(17) any other terms of the series (which terms shall not be inconsistent
with the provisions of this Indenture, except as permitted by Section 901(5)).
All Securities of any one series shall be substantially identical except as
to denomination and except as may otherwise be provided in or pursuant to the
Board Resolution referred to above and (subject to Section 303) set forth in the
Officers' Certificate referred to above or in any such indenture supplemental
hereto.
If any of the terms of the series are established by action taken pursuant
to a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Thirteen.
Section 302. Denominations.
The Securities of each series shall be issuable only in registered form
without coupons and only in such denominations as shall be specified as
contemplated by Section 301. In the absence of any such specified denomination
with respect to the Securities of any series, the Securities of such series
shall be issuable in denominations of $25.00 and any integral multiple thereof.
Section 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman,
its President, any Executive Vice President, any Vice President, its Treasurer
or Assistant Treasurer, under its corporate seal reproduced thereon, attested by
its Corporate Secretary or one of its Assistant Corporate Secretaries. The
signature of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities of any series executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication of such Securities, and the Trustee in accordance with the
Company Order shall authenticate and make available for delivery such
Securities. If the form or terms of the Securities of the series have been
established by or pursuant to one or more Board Resolutions as permitted by
Sections 201 and 301, in authenticating such Securities, and accepting the
additional responsibilities under this Indenture in relation to such Securities,
the Trustee shall be entitled to receive, and (subject to Section 601) shall be
fully protected in relying upon, an Opinion of Counsel stating,
(1) if the form of such Securities has been established by or pursuant to
Board Resolution as permitted by Section 201, that such form has been
established in conformity with the provisions of this Indenture;
(2) if the terms of such Securities have been established by or pursuant to
Board Resolution as permitted by Section 301, that such terms have been
established in conformity with the provisions of this Indenture; and
(3) that such Securities, when authenticated and delivered by the Trustee
and issued by the Company in the manner and subject to any conditions specified
in such Opinion of Counsel, will constitute valid and legally binding
obligations of the Company enforceable in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 301 and of the preceding
paragraph, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 301 or the Company Order and Opinion of Counsel
otherwise required pursuant to such preceding paragraph at or prior to the
authentication of each Security of such series if such documents are delivered
at or prior to the authentication upon original issuance of the first Security
of such series to be issued.
Each Security shall be dated the date of its authentication.
No Security shall entitle the Holder thereof to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided for
herein executed by the Trustee by manual signature, and such certificate upon
any Security shall be conclusive evidence, and the only evidence, that such
Security has been duly authenticated and delivered hereunder. Notwithstanding
the foregoing, if any Security shall have been authenticated and delivered
hereunder but never issued and sold by the Company, and the Company shall
deliver such Security to the Trustee for cancellation as provided in Section
309, for all purposes of this Indenture such Security shall be deemed never to
have been authenticated and delivered hereunder and shall never be entitled to
the benefits of this Indenture.
Section 304. Temporary Securities.
Pending the preparation of definitive Securities of any series, the Company
may execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Securities which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions and
other variations as the officers executing such Securities may determine, as
evidenced by their execution of such Securities.
If temporary Securities of any series are issued, the Company will cause
definitive Securities of that series to be prepared without unreasonable delay.
After the preparation of definitive Securities of such series, the temporary
Securities of such series shall be exchangeable for definitive Securities of
such series upon surrender of the temporary Securities of such series at the
office or agency of the Company in a Place of Payment for that series, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities of any series, the Company shall execute and the Trustee
shall authenticate and make available for delivery in exchange therefor one or
more definitive Securities of the same series, of any authorized denominations
and of like tenor and aggregate principal amount. Until so exchanged, the
temporary Securities of any series shall in all respects be entitled to the same
benefits under this Indenture as definitive Securities of such series and tenor.
Section 305. Registration; Registration of Transfer and Exchange.
The Company shall maintain or cause to be maintained an office or agency
where the Securities may be presented for registration of transfer or for
exchange ("Security Registrar"). The Security Registrar shall keep a register
(the register maintained in such office and in any other office or agency of the
Company in a Place of Payment being herein sometimes collectively referred to as
the "Security Register") in which, subject to such reasonable regulations as it
may prescribe, the Company shall provide for the registration of Securities and
of transfers of Securities. The Security Register shall initially be kept at the
Corporate Trust Office of the Trustee in New York, New York, and the Trustee is
hereby appointed Security Registrar for the purpose of registering Securities
and transfers of Securities as herein provided. The Company shall give prompt
written notice to the Trustee of any change of location of such office or
agency. If at any time the Company shall fail to maintain or cause to be
maintained any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations may be made or served at
the Corporate Trust Office of the Trustee and the Trustee shall act as Security
Registrar and shall be entitled to appropriate compensation therefor. The
Company or any Affiliate of the Company may act as Security Registrar or
co-Registrar.
Upon surrender for registration of transfer of any Security of a series at
the office or agency of the Company in a Place of Payment for that series, the
Company shall execute, and the Trustee shall authenticate and make available for
delivery, in the name of the designated transferee or transferees, one or more
new Securities of the same series, of any authorized denominations and of like
tenor and aggregate principal amount.
At the option of the Holder, Securities of any series may be exchanged for
other Securities of the same series, of any authorized denominations and of like
tenor and aggregate principal amount, upon surrender of the Securities to be
exchanged at the office or agency of the Company in a place of payment for that
series. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and make available for
delivery, the Securities which the Holder making the exchange is entitled to
receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Security Registrar duly executed by the Holder thereof or
his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906 or 1107 not involving any transfer.
If the Securities of any series (or of any series and specified tenor) are
to be redeemed in part, the Company shall not be required (A) to issue, register
the transfer of or exchange any Securities of that series (or of that series and
specified tenor, as the case may be) during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of any
such Securities selected for redemption under Section 1103 and ending at the
close of business on the day of such mailing, or (B) to register the transfer of
or exchange any Security so selected for redemption in whole or in part, except
the unredeemed portion of any Security being redeemed in part.
The provisions of Clauses (1), (2), (3) and (4) below shall apply only to
Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global Security or
a nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.
(2) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depositary for such Global Security or a nominee
thereof unless (A) such Depositary (i) has notified the Company that it is
unwilling or unable to continue as Depositary for such Global Security or (ii)
has ceased to be a clearing agency registered under the Exchange Act at a time
when the Depositary is required to be so registered to act as such Depositary,
(B) there shall have occurred and be continuing an Event of Default with respect
to such Global Security, (C) the Company in its sole discretion determines that
such Global Security shall be so exchangeable, or (D) there shall exist such
circumstances, if any, in addition to or in lieu of the foregoing as have been
specified for this purpose as contemplated by Section 301.
(3) Subject to Clause (2) above, any exchange of a Global Security for
other Securities may be made in whole or in part, and all Securities issued in
exchange for a Global Security or any portion thereof shall be registered in
such names as the Depositary for such Global Security shall direct.
(4) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Section, Section 304, 306, 906 or 1107 or
otherwise, shall be authenticated and delivered in the form of, and shall be, a
Global Security, unless such Security is registered in the name of a Person
other than the Depositary for such Global Security or a nominee thereof.
Section 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and make available for delivery in
exchange therefor a new Security of the same series and of like tenor and
principal amount and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and make
available for delivery, in lieu of any such destroyed, lost or stolen Security,
a new Security of the same series and of like tenor and principal amount and
bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security of any series issued pursuant to this Section in lieu of
any destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of that series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
Section 307. Payment of Interest; Interest Rights Preserved.
Except as otherwise provided as contemplated by Section 301 with respect to
any series of Securities, interest on any Security which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be paid
to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest.
Any interest on any Security of any series which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the
Persons in whose names the Securities of such series (or their respective
Predecessor Securities) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Security of such series
and the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date of
the proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as provided in this
Clause. Thereupon the Trustee shall fix a Special Record Date for the payment of
such Defaulted Interest which shall be not more than 15 days and not less than
10 days prior to the date of the proposed payment and not less than 10 days
after the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date and, in
the name and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor to be
given to each Holder of Securities of such series in the manner set forth in
Section 106, not less than 10 days prior to such Special Record Date. Notice of
the proposed payment of such Defaulted Interest and the Special Record Date
therefor having been so mailed, such Defaulted Interest shall be paid to the
Persons in whose names the Securities of such series (or their respective
Predecessor Securities) are registered at the close of business on such Special
Record Date and shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest on the
Securities of any series in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Securities may be listed,
and upon such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this Clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid (including any Additional Interest), and to accrue, which were
carried by such other Security.
Section 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of and any premium and
(subject to Section 307) any interest (including any Additional Interest) on
such Security and for all other purposes whatsoever, whether or not such
Security be overdue, and neither the Company, the Trustee nor any agent of the
Company or the Trustee shall be affected by notice to the contrary.
Section 309. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly cancelled by it. The Company may at any time deliver to
the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and may deliver to the Trustee (or to any other Person for delivery
to the Trustee) for cancellation any Securities previously authenticated
hereunder which the Company has not issued and sold, and all Securities so
delivered shall be promptly cancelled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities cancelled as provided
in this Section, except as expressly permitted by this Indenture. All cancelled
Securities held by the Trustee shall be disposed of as directed by a Company
Order; provided, however, that the Trustee may, but shall not be required to,
destroy such cancelled Securities.
Section 310. Computation of Interest.
Except as otherwise specified as contemplated by Section 301 for Securities
of any series, interest on the Securities of each series shall be computed on
the basis of a 360-day year of twelve 30-day months.
Section 311. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Company will promptly notify
the Trustee of any change in the CUSIP numbers.
ARTICLE FOUR
Satisfaction and Discharge
Section 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
(except as to any surviving rights of registration of transfer or exchange of
Securities herein expressly provided for), and the Trustee, at the expense of
the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other than
(i) Securities which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 306 and (ii)
Securities for whose payment money or U.S. Government Obligations
has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation (i) have become due and payable, or (ii) will become
due and payable at their Stated Maturity within one year, or (iii)
are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) of clause B above, has
deposited or caused to be deposited with the Trustee as trust funds in trust for
the purpose money or U.S. Government Obligations, sufficient in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and discharge the
entire indebtedness on such Securities not theretofore delivered to the Trustee
for cancellation, for principal and any premium and interest to the date of such
deposit (in the case of Securities which have become due and payable) or to the
Stated Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Company to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
Section 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and any premium and
interest for whose payment such money has been deposited with the Trustee.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 401 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of Outstanding Securities.
ARTICLE FIVE
Remedies
Section 501. Events of Default.
"Event of Default", wherever used herein with respect to Securities of any
series, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be occasioned by the provisions of Article
Thirteen or be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(1) default in the payment of any interest (including any Additional
Interest) upon any Security of that series when it becomes due and payable, and
continuance of such default for a period of 30 days (subject to the deferral of
any due date in the case of an Extension Period); or
(2) default in the payment of the principal of or any premium on any
Security of that series whether due at its Maturity, upon redemption, by
declaration or otherwise; or
(3) default in the deposit of any sinking fund payment, when and as due by
the terms of a Security of that series; or
(4) default, in any material respect, in the performance, or breach, of any
covenant or warranty of the Company in this Indenture (other than a covenant or
warranty a default in whose performance or whose breach is elsewhere in this
Section specifically dealt with or which has expressly been included in this
Indenture solely for the benefit of a series of Securities other than that
series), and continuance of such default or breach for a period of 90 days after
there has been given, by registered or certified mail, to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Securities of that series or by the holders
of at least 25% in aggregate liquidation preference amount of the related series
of Capital Securities then outstanding a written notice specifying such default
or breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder; or
(5 the entry by a court having jurisdiction in the premises of (A) a decree
or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in respect
of the Company under any applicable Federal or State law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order for relief or any such other decree or order unstayed
and in effect for a period of 90 consecutive days; or
(6) the commencement by the Company of a voluntary case or proceeding under
any applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by it to the entry of a decree or order for relief in
respect of the Company in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar law or
to the commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or State law, or the
consent by it to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or other similar official of the Company or of any substantial part of its
property, or the making by it of an assignment for the benefit of creditors, or
the admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the Company in furtherance
of any such action; or
(7) any other Event of Default provided with respect to Securities of that
series.
Section 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to Securities of any series at the time
Outstanding occurs and is continuing, then in every such case the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Securities
of that series or if such Holders of such Securities and the Trustee fail to
make such declaration, the holders of not less than 25% in aggregate liquidation
preference amount of the related series of Capital Securities then outstanding,
may declare the principal amount of all the Securities of that series (or, if
any Securities of that series are Original Issue Discount Securities, such
portion of the principal amount of such Securities as may be specified by the
terms thereof) to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders or holders of the related
Capital Securities) and upon any such declaration such principal amount (or
specified amount) shall become immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, or if such declaration has been made by
the holders of the related series of Capital Securities, the holders of a
majority in aggregate liquidation preference amount of the related series of
Capital Securities then outstanding by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum sufficient to
pay
(A) all overdue interest (including any Additional Interest) on all
Securities of that series,
(B) the principal of (and premium, if any, on) any Securities of that
series which have become due otherwise than by such declaration of
acceleration and any interest thereon at the rate or rates
prescribed therefor in such Securities,
(C) to the extent that payment of such interest is lawful, interest upon
overdue interest at the rate or rates prescribed therefor in such
Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2) all Events of Default with respect to Securities of that series, other
than the non-payment of the principal of Securities of that series which have
become due solely by such declaration of acceleration, have been cured or waived
as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any interest (including any
Additional Interest) on any Security when such interest becomes due and payable
and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or premium, if any,
on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and any premium and interest (including any Additional
Interest) and, to the extent that payment of such interest shall be legally
enforceable, interest on any overdue principal, premium and any overdue
interest, at the rate or rates prescribed therefor in such Securities, and, in
addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series and the
holders of the related Capital Securities by such appropriate judicial
proceedings, including a proceeding to obtain a judgment in the Trustee's name
and as Trustee under the Indenture, as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
Section 504. Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to the Company (or any other
obligor upon the Securities), its property or its creditors, the Trustee shall
be entitled and empowered, by intervention in such proceeding or otherwise, to
take any and all actions authorized under the Trust Indenture Act in order to
have claims of the Holders and the Trustee allowed in any such proceeding. In
particular, the Trustee shall be authorized to collect and receive any moneys or
other property payable or deliverable on any such claims and to distribute the
same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator
or other similar official in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
Section 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Securities in respect of which such judgment has been
recovered.
Section 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or any premium
or interest (including any Additional Interest), upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
First: To the payment of all amounts due the Trustee under Section 607;
Second: Subject to Article Thirteen, to the payment of the amounts then due
and unpaid for principal of and any premium and interest (including any
Additional Interest) on the Securities in respect of which or for the benefit of
which such money has been collected, ratably, without preference or priority of
any kind, according to the amounts due and payable on such Securities for
principal and any premium and interest (including any Additional Interest),
respectively; and
Third: To the Company.
Section 507. Limitation on Suits.
No Holder of any Security of any series or holder of any Capital Securities
shall have any right to institute any proceeding, judicial or otherwise, with
respect to this Indenture, or for the appointment of a receiver or trustee, or
for any other remedy hereunder, unless
(1) such Holder or holder of a Capital Security, as the case may be, has
previously given written notice to the Trustee of a continuing Event of Default
with respect to the Securities of that series;
(2 the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series or the holders of not less than 25% in aggregate
liquidation preference amount of the related series of Capital Securities then
outstanding shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee
hereunder;
(3) such Holders or holders of such Capital Securities have offered to the
Trustee reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in principal
amount of the Outstanding Securities of that series in the case of a proceeding
instituted by a Holder or Holders, or, by a holder or holders of a majority in
liquidation preference amount of the related series of Capital Securities then
outstanding in the case of a proceeding instituted by such holder or holders of
Capital Securities;
it being understood and intended that no one or more of such Holders or holders
of Capital Securities shall have any right in any manner whatever by virtue of,
or by availing of, any provision of this Indenture to affect, disturb or
prejudice the rights of any other of such Holders or holders of Capital
Securities, or to obtain or to seek to obtain priority or preference over any
other of such Holders or holders of Capital Securities or to enforce any right
under this Indenture, except in the manner herein provided and for the equal and
ratable benefit of all of such Holders.
Section 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of and any premium and (subject to Section 307)
interest (including any Additional Interest) on such Security on the respective
Stated Maturities expressed in such Security (or, in the case of redemption, on
the Redemption Date) and to institute suit for the enforcement of any such
payment, and such rights shall not be impaired without the consent of such
Holder. Any holder of related Capital Securities shall have the right to
institute suit for the enforcement of any such payment to such holder with
respect to Securities relating to such Capital Securities having a principal
amount equal to the aggregate liquidation preference amount of the related
Capital Securities held by such holder.
Section 509. Restoration of Rights and Remedies.
If the Trustee or any Holder or holder of Capital Securities has instituted
any proceeding to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder or such holder of Capital
Securities, then and in every such case, subject to any determination in such
proceeding, the Company, the Trustee and the Holders and the holders of the
Capital Securities shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and
the Holders shall and the holders of the Capital Securities continue as though
no such proceeding had been instituted.
Section 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee, the
Holders or the holders of Capital Securities is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
Section 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee, any Holder of any Securities or any
holder of a Capital Security to exercise any right or remedy accruing upon any
Event of Default shall impair any such right or remedy or constitute a waiver of
any such Event of Default or an acquiescence therein. Every right and remedy
given by this Article or by law to the Trustee, the Holders or the holders of
Capital Securities may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the Holders or holders of Capital
Securities, as the case may be.
Section 512. Control by Holders.
The Holders of a majority in principal amount of the Outstanding Securities
of any series shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, with respect to the Securities of
such series, provided that
(1) such direction shall not be in conflict with any rule of law or with
this Indenture, and
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
The holders of a majority in liquidation preference amount of any series
of Capital Securities then outstanding shall have the right to direct the time,
method and place of conducting any proceeding instituted by any holders of such
series of Capital Securities with respect to the Securities related to such
series of Capital Securities, provided that such direction shall not be in
conflict with any rule of law or with this Indenture.
Section 513. Waiver of Past Defaults.
Subject to Section 902, the Holders of not less than a majority in
principal amount of the Outstanding Securities of any series may on behalf of
the Holders of all the Securities of such series waive any past default
hereunder with respect to such series and its consequences, except a default
(1) in the payment of the principal of or any premium or interest
(including any Additional Interest) on any Security of such series, or
(2) in respect of a covenant or provision hereof which under Article Nine
cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected;
provided, that, so long as any of the Capital Securities remain outstanding, no
waiver of any Event of Default or compliance with any covenant under this
Indenture that adversely affects the holders of any related series of Capital
Securities shall be effective without the prior consent of the holders of at
least a majority of the aggregate liquidation preference amount of the
outstanding Capital Securities of that series unless and until the Securities
and all accrued and unpaid interest (including any Additional Interest) thereon
has been paid in full.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
Section 514. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; provided that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Company or the Trustee.
Section 515. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
The Trustee
Section 601. Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as provided by the
Trust Indenture Act and as specifically set forth in this Indenture.
Notwithstanding the foregoing, no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the exercise
of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it. Whether or not therein expressly
so provided, every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section. Nothing in this Indenture shall be
construed to release the Trustee from liability for its own negligent action,
its own negligent failure to act, or its own willful misconduct.
Section 602. Notice of Defaults.
If a default occurs hereunder with respect to Securities of any series, the
Trustee shall give the Holders of Securities of such series notice of such
default as and to the extent provided by the Trust Indenture Act; provided,
however, that in the case of any default of the character specified in Section
501(4) with respect to Securities of such series, no such notice to Holders
shall be given until at least 30 days after the occurrence thereof. For the
purpose of this Section, the term "default" means any event which is, or after
notice or lapse of time or both would become, an Event of Default with respect
to Securities of such series.
Section 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(1) the Trustee may rely and shall be protected in acting or refraining
from acting in good faith upon any resolution, opinion of counsel, certificate,
written representation of a Holder or transferee, certificate of auditors or any
other certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order, and any resolution
of the Board of Directors shall be sufficiently evidenced by a Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall deem
it desirable that a matter be proved or established prior to taking, suffering
or omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, rely upon
an Officers' Certificate;
(4) the Trustee may consult with counsel of its selection or other experts
and the advice of such counsel or any Opinion of Counsel with respect to legal
matters or advice within the scope of such experts' area of expertise shall be
full and complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders or any of the holders of Capital Securities pursuant to this
Indenture, unless such Holders or such holders of Capital Securities shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;
(6) the Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, approval, bond,
debenture, note, other evidence of indebtedness or other paper or document, but
the Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be entitled
upon prior reasonable notice to examine during normal business hours the books,
records and premises of the Company, personally or by agent or attorney,
provided that prior to such examination the Trustee shall agree in writing to be
bound by such reasonable confidentiality obligations as the Company shall
require;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder; and
(8) the Trustee shall not be liable for any action taken, suffered, or
omitted to be taken by it in good faith and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred upon it by
this Indenture.
Section 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and neither the Trustee nor any Authenticating Agent assumes any responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Securities. Neither the Trustee nor
any Authenticating Agent shall be accountable for the use or application by the
Company of Securities or the proceeds thereof.
Section 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.
Section 606. Money Held in Trust.
Money held by the Trustee in trust hereunder shall be segregated from funds
which the Trustee does not hold in trust but need not be segregated from other
funds held in trust except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed in writing with the Company.
Section 607. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time such compensation as shall be
agreed in writing between the Company and the Trustee for all services rendered
by it hereunder (which compensation shall not be limited by any provision of law
in regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the Trustee
upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(3) to indemnify each of the Trustee or any predecessor Trustee for, and to
hold it harmless against, any and all loss, damage, claims, liability, penalty
or expense, including taxes other than taxes based upon the income of the
Trustee, incurred without negligence or bad faith on its part, arising out of or
in connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder.
The Trustee shall have a lien prior to the Securities as to all property
and funds held by it hereunder for any amount owing it or any predecessor
Trustee pursuant to this Section 607, except with respect to funds held in trust
for the benefit of the Holders of particular Securities.
When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 501(5) or Section 501(6), the expenses
(including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
Section 608. Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture. To the extent
permitted by such Act, the Trustee shall not be deemed to have a conflicting
interest by virtue of being a trustee under this Indenture with respect to
Securities of more than one series.
Section 609. Corporate Trustee Required; Eligibility.
There shall at all times be one (and only one) Trustee hereunder with
respect to the Securities of each series, which may be Trustee hereunder for
Securities of one or more other series. Each Trustee shall be a Person that is
eligible pursuant to the Trust Indenture Act to act as such and has a combined
capital and surplus of at least $50,000,000. If any such Person publishes
reports of condition at least annually, pursuant to law or to the requirements
of its supervising or examining authority, then for the purposes of this Section
and to the extent permitted by the Trust Indenture Act, the combined capital and
surplus of such Person shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
the Trustee with respect to the Securities of any series shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
Section 610. Resignation and Removal; Appointment of Successor.
No resignation or removal of the Trustee and no appointment of a successor
Trustee pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee in accordance with the applicable
requirements of Section 611.
The Trustee may resign at any time with respect to the Securities of one or
more series by giving written notice thereof to the Company. The Trustee may be
removed at any time with respect to the Securities of any series by Act of the
Holders of a majority in principal amount of the Outstanding Securities of such
series, delivered to the Trustee and to the Company. If the instrument of
acceptance by a successor Trustee required by Section 611 shall not have been
delivered to the Trustee within 30 days after the giving of such notice of
resignation or removal, the resigning Trustee may petition, at the expense of
the Company, any court of competent jurisdiction for the appointment of a
successor Trustee with respect to the Securities of such series.
If at any time:
(1) the Trustee shall fail to comply with Section 608 after written request
therefor by the Company or by any Holder who has been a bona fide Holder of a
Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and shall fail
to resign after written request therefor by the Company or by any such Holder,
or
(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall be
appointed or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (A) the Company may remove the Trustee with respect to
all Securities, or (B) subject to Section 514, any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee with respect to all Securities and the appointment of
a successor Trustee or Trustees.
If the Trustee shall resign, be removed or become incapable of acting, or
if a vacancy shall occur in the office of Trustee for any cause, with respect to
the Securities of one or more series, the Company shall promptly appoint a
successor Trustee or Trustees with respect to the Securities of that or those
series (it being understood that any such successor Trustee may be appointed
with respect to the Securities of one or more or all of such series and that at
any time there shall be only one Trustee with respect to the Securities of any
particular series) and shall comply with the applicable requirements of Section
611. If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee with respect to the Securities
of any series shall be appointed by Act of the Holders of a majority in
principal amount of the Outstanding Securities of such series delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment in accordance with the
applicable requirements of Section 611, become the successor Trustee with
respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee with respect
to the Securities of any series shall have been so appointed by the Company or
the Holders and accepted appointment in the manner required by Section 611, any
Holder who has been a bona fide Holder of a Security of such series for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee
with respect to the Securities of such series.
The Company shall give notice of each resignation and each removal of the
Trustee with respect to the Securities of any series and each appointment of a
successor Trustee with respect to the Securities of any series to all Holders of
Securities of such series in the manner provided in Section 106. Each notice
shall include the name of the successor Trustee with respect to the Securities
of such series and the address of its Corporate Trust Office.
Section 611. Acceptance of Appointment by Successor.
In case of the appointment hereunder of a successor Trustee with respect to
all Securities, every such successor Trustee so appointed shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to the successor Trustee all property and money
held by such retiring Trustee hereunder.
In case of the appointment hereunder of a successor Trustee with respect to
the Securities of one or more (but not all) series, the Company, the retiring
Trustee and each successor Trustee with respect to the Securities of one or more
series shall execute and deliver an indenture supplemental hereto wherein each
successor Trustee shall accept such appointment and which (1) shall contain such
provisions as shall be necessary or desirable to transfer and confirm to, and to
vest in, each successor Trustee all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Securities of that or those series to which
the appointment of such successor Trustee relates, (2) if the retiring Trustee
is not retiring with respect to all Securities, shall contain such provisions as
shall be deemed necessary or desirable to confirm that all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series as to which the retiring Trustee is not retiring shall continue
to be vested in the retiring Trustee, and (3) shall add to or change any of the
provisions of this Indenture as shall be necessary to provide for or facilitate
the administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee; and upon
the execution and delivery of such supplemental indenture the resignation or
removal of the retiring Trustee shall become effective to the extent provided
therein and each such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
to which the appointment of such successor Trustee relates; but, on request of
the Company or any successor Trustee, such retiring Trustee shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates.
Upon request of any such successor Trustee, the Company shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor Trustee all such rights, powers and trusts referred to in the
first or second preceding paragraph, as the case may be.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
Section 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to and
shall take all actions necessary in order to comply with the provisions of the
Trust Indenture Act regarding the collection of claims against the Company (or
any such other obligor).
Section 614. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents with respect to
one or more series of Securities which shall be authorized to act on behalf of
the Trustee to authenticate Securities of such series issued upon original issue
and upon exchange, registration of transfer or partial redemption thereof or
pursuant to Section 306, and Securities so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 106 to all Holders of Securities
of the series with respect to which such Authenticating Agent will serve. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternative
certificate of authentication in the following form:
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
THE BANK OF NEW YORK,
As Trustee
By
As Authenticating Agent
By
Authorized Officer
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
Section 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(1) quarterly, not later than 10 days after a Regular Record Date, a list,
in such form as the Trustee may reasonably require, of the names and addresses
of the Holders of Securities of each series as of the immediately preceding
Regular Record Date, and
(2) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 10 days prior to the time such list
is furnished;
in each case to the extent such information is in the possession or control of
the Company, or any of its Paying Agents, and is not identical to a previously
supplied list or has not otherwise been received by the Trustee in its capacity
as Security Registrar and in each case, provided that no such list need be
furnished if the Trustee shall be the Security Registrar.
Section 702. Preservation of Information; Communications to Holders.
The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights and privileges of the Trustee, shall be as provided by the Trust
Indenture Act.
Every Holder of Securities, by receiving and holding the same, agrees with
the Company and the Trustee that neither the Company nor the Trustee nor any
agent of either of them shall be held accountable by reason of any disclosure of
information as to names and addresses of Holders made pursuant to the Trust
Indenture Act.
Section 703. Reports by Trustee.
The Trustee shall transmit to Holders such reports concerning the Trustee
and its actions under this Indenture as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant thereto. If
required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within
sixty days after each May 15 following the date of this Indenture deliver to
Holders a brief report, dated as of such May 15, which complies with the
provisions of such Section 313(a). Delivery of such reports, information and
documents to the Trustee is for informational purposes only and the Trustee's
receipt of such shall not constitute constructive notice of any information
contained therein, including the Company's compliance with any of its convenants
hereunder (as to which the Trustee is entitled to rely exclusively or Officers'
Certificates).
A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which any
Securities are listed, with the Commission and with the Company. The Company
will promptly notify the Trustee when any Securities are listed on any stock
exchange.
Section 704. Reports by Company.
The Company shall file with the Trustee and the Commission, and transmit to
Holders, such information, documents and other reports, and such summaries
thereof, as may be required pursuant to the Trust Indenture Act at the times and
in the manner provided pursuant to such Act; provided that any such information,
documents or reports required to be filed with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within
15 days after the same is so required to be filed with the Commission.
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
Section 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person or
sell, convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any Person, and the Company shall not permit any
Person to consolidate with or merge into the Company, unless:
(1) in case the Company shall consolidate with or merge into another Person
or sell, convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, conveyance or transfer, or which leases, the properties and assets of
the Company as an entirety or substantially as an entirety shall be a
corporation, partnership or trust, shall be organized and validly existing under
the laws of the United States of America, any State thereof or the District of
Columbia and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, the
due and punctual payment of the principal of and any premium and interest
(including any Additional Interest) on all the Securities and the performance or
observance of every covenant of this Indenture and any Guarantees on the part of
the Company to be performed or observed;
(2) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Company or a Subsidiary as a
result of such transaction as having been incurred by the Company or such
Subsidiary at the time of such transaction, no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of Default,
shall have happened and be continuing;
(3) such consolidation or merger or conveyance, transfer or lease of
properties or assets of the Company is permitted under each Trust Agreement and
each Guarantee and does not give rise to any breach or violation of, any Trust
Agreement or any Guarantee; and
(4) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that such sale consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with this
Article and that all conditions precedent herein provided for relating to such
transaction have been complied with.
Section 802. Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any conveyance, transfer or lease of the properties and
assets of the Company as an entirety or substantially as an entirety in
accordance with Section 801, the successor Person formed by such consolidation
or into which the Company is merged or to which such conveyance, transfer or
lease is made shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under this Indenture with the same effect as if
such successor Person had been named as the Company herein, and thereafter,
except in the case of a lease, the predecessor Person shall be relieved of all
obligations and covenants under this Indenture and the Securities.
ARTICLE NINE
Supplemental Indentures
Section 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by an
officer pursuant to authority established by a Board Resolution, and the
Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:
(1) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company herein and in
the Securities; or
(2) to add to the covenants of the Company for the benefit of the Holders
of all or any series of Securities (and if such covenants are to be for the
benefit of less than all series of Securities, stating that such covenants are
expressly being included solely for the benefit of such series) or to surrender
any right or power herein conferred upon the Company; or
(3) to add any additional Events of Default for the benefit of the Holders
of all or any series of Securities (and if such additional Events of Default are
to be for the benefit of less than all series of Securities, stating that such
additional Events of Default are expressly being included solely for the benefit
of such series); or
(4) to add to or change any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the issuance of Securities
in bearer form, registrable or not registrable as to principal, and with or
without interest coupons, or to permit or facilitate the issuance of Securities
in uncertificated form; or
(5) to add to, change or eliminate any of the provisions of this Indenture
in respect of one or more series of Securities, provided that any such addition,
change or elimination (A) shall neither (i) apply to any Security of any series
created prior to the execution of such supplemental indenture and entitled to
the benefit of such provision nor (ii) modify the rights of the Holder of any
such Security with respect to such provision or (B) shall become effective only
when there is no such Security Outstanding; or
(6) to secure the Securities; or
(7) to establish the form or terms of Securities of any series as permitted
by Sections 201 and 301; or
(8) to evidence and provide for the acceptance of appointment hereunder by
a successor Trustee with respect to the Securities of one or more series and to
add to or change any of the provisions of this Indenture as shall be necessary
to provide for or facilitate the administration of the trusts hereunder by more
than one Trustee, pursuant to the requirements of Section 611; or
(9) to add to, change or eliminate any of the provisions of this Indenture
in order to maintain the qualification of the Indenture under the Trust
Indenture Act; or
(10) to cure any ambiguity, to correct or supplement any provision herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising under
this Indenture, provided that such action pursuant to this Clause (10) shall not
adversely affect the interests of the Holders of Securities of any series in any
material respect; or
(11) to conform to any mandatory provisions of law.
Section 902. Supplemental Indentures With Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by an Officer, and the Trustee may enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of this Indenture or of modifying in any manner the rights of the Holders of
Securities of such series under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any installment of
principal of or interest (including any Additional Interest) on, any Security,
or reduce the principal amount thereof or the rate of interest thereon or any
premium payable upon the redemption thereof, or reduce the amount of principal
of an Original Issue Discount Security or other Security which would be due and
payable upon a declaration of acceleration of the maturity thereof pursuant to
Section 502, or extend the time of payment of interest thereon (other than as
provided pursuant to Section 301(5)), or change any Place of Payment where, or
the coin or currency in which, any Security or any premium or interest thereon
is payable, or impair the right to institute suit for the enforcement of any
such payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date), or modify the provisions of this
Indenture with respect to the subordination of the Securities in a manner
adverse to the Holders, or
(2) reduce the percentage of principal amount of the Outstanding Securities
of any series, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section or Sections 513 or 1006,
except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent of
the Holder of each Outstanding Security affected thereby; provided, however,
that this clause shall not be deemed to require the consent of any Holder with
respect to changes in the references to "the Trustee" and concomitant changes in
this Section, or the deletion of this proviso, in accordance with the
requirements of Sections 611 and 901(8),
provided, that, so long as any of the Capital Securities remains outstanding, no
such amendment shall be made that adversely affects the holders of the Capital
Securities and no waiver of any Event of Default or compliance with any covenant
under this Indenture shall be effective, without the prior consent of the
holders of at least a majority of the aggregate liquidation preference of the
outstanding Capital Securities so affected unless and until the series of
Securities relating to such Capital Securities and all accrued and unpaid
interest (including any Additional Interest) thereon have been paid in full.
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of such series with respect to such covenant
or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
Section 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Section 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
Section 906. Reference in Securities to Supplemental Indentures.
Securities of any series authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities of such series.
ARTICLE TEN
Covenants
Section 1001. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of each series of
Securities that it will duly and punctually pay the principal of and any premium
and interest (including any Additional Interest) on the Securities of that
series in accordance with the terms of the Securities and this Indenture.
Section 1002. Maintenance of Office or Agency.
The Company will maintain in each Place of Payment for any series of
Securities an office or agency where Securities of that series may be presented
or surrendered for payment, where Securities of that series may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Company in respect of the Securities of that series and this Indenture
may be served. The Company will give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its agent
to receive all such presentations, surrenders, notices and demands. The Company
or any Affiliate of the Company may act as Paying Agent or agent for service of
notices and demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities of one or more series may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in each Place of Payment for Securities of any series for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
Section 1003. Money for Securities Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities, it will, on or before each due date of the
principal of or any premium or interest on any of the Securities of that series,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal and any premium and interest so becoming due
until such sums shall be paid to such Persons or otherwise disposed of as herein
provided and will promptly notify the Trustee of its action or failure so to
act.
Whenever the Company shall have one or more Paying Agents for any series of
Securities, it will, on or before each due date of the principal of or any
premium or interest on any Securities of that series, deposit with a Paying
Agent a sum sufficient to pay such amount, such sum to be held as provided by
the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the
Company will promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent for any series of Securities other
than the Trustee to execute and deliver to the Trustee an instrument in which
such Paying Agent shall agree with the Trustee, subject to the provisions of
this Section, that such Paying Agent will (1) comply with the provisions of the
Trust Indenture Act applicable to it as a Paying Agent and (2) during the
continuance of any default by the Company (or any other obligor upon the
Securities of that series) in the making of any payment in respect of the
Securities of that series, upon the written request of the Trustee, forthwith
pay to the Trustee all sums held in trust by such Paying Agent for payment in
respect of the Securities of that series.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of or any premium or
interest on any Security of any series and remaining unclaimed for two years
after such principal, premium or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in New York, New York,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the
Company.
Section 1004. Statement by Officers as to Default.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company beginning with the fiscal year ended December
31, 1996, an Officers' Certificate (one of the signers of which shall be the
principal executive officer, principal financial officer or principal accounting
officer of the Company), stating whether or not to the best knowledge of the
signers thereof the Company is in default in the performance and observance of
any of the terms, provisions and conditions of this Indenture (without regard to
any period of grace or requirement of notice provided hereunder) and, if the
Company shall be in default, specifying all such defaults and the nature and
status thereof of which they may have knowledge.
Section 1005. Additional Covenants.
The Company covenants and agrees, for the benefit of the Holders of
Securities of each series, that it will not, and will not permit any Subsidiary
of the Company to, declare or pay any dividend or distribution on, or redeem,
purchase, acquire or make a liquidation or guarantee payment (other than
payments under a Guarantee) with respect to, any shares of capital stock or any
security of the Company (including other Securities) ranking pari passu with or
junior in interest to the Securities (except (x) for payments with securities
junior in interest to the Securities, (y) for payments made on any series of
Securities upon the Stated Maturity of such Securities, or (z) for payments of
accrued dividends (and cash in lieu of fractional shares) upon conversion into
common stock of any convertible preferred stock of the Company of any series now
or hereinafter outstanding, in accordance with the terms of the stock) if at
such time (i) there shall have occurred any event of which the Company has
actual knowledge that (a) with the giving of notice or the lapse of time or
both, would constitute an Event of Default hereunder with respect to Securities
of such series and (b) in respect of which the Company shall not have taken
reasonable steps to cure, (ii) the Company shall be in default with respect to
its payment of any obligations under the Guarantee relating to the Capital
Securities of the Trust to which the Securities of such series have been issued
or (iii) the Company shall have given notice of its selection of an Extension
Period as provided herein with respect to Securities of such series and such
Extension Period, or any extension thereof, shall have commenced and be
continuing.
The Company also covenants, for the benefit of the Holders of Securities of
each series, (i) to maintain directly or indirectly 100% ownership of the Common
Securities of the Trust to which the Securities of such series have been issued;
provided, however, that any permitted successor of the Company hereunder may
succeed to the Company's ownership of such Common Securities, (ii) not to
voluntarily liquidate, wind-up or terminate such Trust, except (A) in connection
with a distribution of the Securities of such series to the holders of Capital
Securities in liquidation of such Trust, (B) as otherwise permitted by the terms
specified pursuant to Section 301 for such Securities or (C) in connection with
certain mergers, consolidations or amalgamations permitted by the Trust
Agreement relating to such Trust and (iii) to use its reasonable efforts,
consistent with the terms and provisions of such Trust Agreement, to cause such
Trust to remain a business trust and not to be classified as an association
taxable as a corporation for United States federal income tax purposes.
Section 1006. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in Sections 1002 to 1005, inclusive, with
respect to the Securities of any series if before the time for such compliance
the Holders of at least a majority in principal amount of the Outstanding
Securities of such series shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such term,
provision or condition, but until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
term, provision or condition shall remain in full force and effect.
Section 1007. Calculation of Original Issue Discount.
The Company shall file with the Trustee promptly after the end of each
calendar year a written notice specifying the amount of original issue discount
(including daily rates and accrual periods) accrued on Outstanding Securities as
of the end of such year.
ARTICLE ELEVEN
Redemption of Securities
Section 1101. Applicability of Article.
Securities of any series which are redeemable before their Stated Maturity
shall be redeemable in accordance with their terms and (except as otherwise
specified as contemplated by Section 301 for such Securities) in accordance with
this Article.
Section 1102. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by
a Board Resolution or in another manner specified as contemplated by Section 301
for such Securities. In case of any redemption at the election of the Company,
the Company shall, not less than 35 days nor more than 90 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date, of the
principal amount of Securities of such series to be redeemed and, if applicable,
of the tenor of the Securities to be redeemed. In the case of any redemption of
Securities prior to the expiration of any restriction on such redemption
provided in the terms of such Securities or elsewhere in this Indenture, the
Company shall furnish the Trustee with an Officers' Certificate evidencing
compliance with such restriction.
Section 1103. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities of any series are to be redeemed (unless
all the Securities of such series and of a specified tenor are to be redeemed or
unless such redemption affects only a single Security), the particular
Securities to be redeemed shall be selected not more than 90 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities of such series
not previously called for redemption, by such method as the Trustee shall deem
fair and appropriate and which may provide for the selection for redemption of a
portion of the principal amount of any Security of such series, provided that
the unredeemed portion of the principal amount of any Security shall be in an
authorized denomination (which shall not be less than the minimum authorized
denomination) for such Security. If less than all the Securities of such series
and of a specified tenor are to be redeemed (unless such redemption affects only
a single Security), the particular Securities to be redeemed shall be selected
not more than 90 days prior to the Redemption Date by the Trustee, from the
Outstanding Securities of such series and specified tenor not previously called
for redemption in accordance with the preceding sentence.
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption as aforesaid and, in case of any Securities selected for
partial redemption as aforesaid, the principal amount thereof to be redeemed.
The provisions of the two preceding paragraphs shall not apply with respect
to any redemption affecting only a single Security, whether such Security is to
be redeemed in whole or in part. In the case of any such redemption in part, the
unredeemed portion of the principal amount of the Security shall be in an
authorized denomination (which shall not be less than the minimum authorized
denomination) for such Security.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
Section 1104. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 20 nor more than 90 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at his address appearing in the
Security Register.
All notices of redemption shall identify the Securities to be redeemed
(including CUSIP number) and shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities of any series consisting of
more than a single Security are to be redeemed, the identification (and, in the
case of partial redemption of any such Securities, the principal amounts) of the
particular Securities to be redeemed and, if less than all the Outstanding
Securities of any series consisting of a single Security are to be redeemed, the
principal amount of the particular Security to be redeemed,
(4) that on the Redemption Date the Redemption Price will become due and
payable upon each such Security to be redeemed and, if applicable, that interest
thereon will cease to accrue on and after said date,
(5) the place or places where each such Security is to be surrendered for
payment of the Redemption Price, and
(6) that the redemption is for a sinking fund, if such is the case.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
Section 1105. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the Securities
which are to be redeemed on that date.
Section 1106. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; provided, however, that, unless otherwise specified as
contemplated by Section 301, installments of interest whose Stated Maturity is
on or prior to the Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such at the
close of business on the relevant Record Dates according to their terms and the
provisions of Section 307.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and any premium shall, until paid, bear
interest from the Redemption Date at the rate prescribed therefor in the
Security.
Section 1107. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at a
Place of Payment therefor (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and make available for delivery to the Holder of such
Security without service charge, a new Security or Securities of the same series
and of like tenor, of any authorized denomination as requested by such Holder,
in aggregate principal amount equal to and in exchange for the unredeemed
portion of the principal of the Security so surrendered.
ARTICLE TWELVE
Sinking Funds
Section 1201. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund for
the retirement of Securities of any series except as otherwise specified as
contemplated by Section 301 for such Securities.
The minimum amount of any sinking fund payment provided for by the terms of
any Securities is herein referred to as a "mandatory sinking fund payment", and
any payment in excess of such minimum amount provided for by the terms of such
Securities is herein referred to as an "optional sinking fund payment". If
provided for by the terms of any Securities, the cash amount of any sinking fund
payment may be subject to reduction as provided in Section 1202. Each sinking
fund payment shall be applied to the redemption of Securities as provided for by
the terms of such Securities.
Section 1202. Satisfaction of Sinking Fund Payments with Securities.
The Company (1) may deliver Outstanding Securities of a series (other than
any previously called for redemption) and (2) may apply as a credit Securities
of a series which have been redeemed either at the election of the Company
pursuant to the terms of such Securities or through the application of permitted
optional sinking fund payments pursuant to the terms of such Securities, in each
case in satisfaction of all or any part of any sinking fund payment with respect
to any Securities of such series required to be made pursuant to the terms of
such Securities as and to the extent provided for by the terms of such
Securities; provided that the Securities to be so credited have not been
previously so credited. The Securities to be so credited shall be received and
credited for such purpose by the Trustee at the Redemption Price, as specified
in the Securities so to be redeemed, for redemption through operation of the
sinking fund and the amount of such sinking fund payment shall be reduced
accordingly.
Section 1203. Redemption of Securities for Sinking Fund.
Not less than 60 days prior to each sinking fund payment date for any
Securities, the Company will deliver to the Trustee an Officers' Certificate
specifying the amount of the next ensuing sinking fund payment for such
Securities pursuant to the terms of such Securities, the portion thereof, if
any, which is to be satisfied by payment of cash and the portion thereof, if
any, which is to be satisfied by delivering and crediting Securities pursuant to
Section 1202 and will also deliver to the Trustee any Securities to be so
delivered. Not less than 30 days prior to each such sinking fund payment date,
the Trustee shall select the Securities to be redeemed upon such sinking fund
payment date in the manner specified in Section 1103 and cause notice of the
redemption thereof to be given in the name of and at the expense of the Company
in the manner provided in Section 1104. Such notice having been duly given, the
redemption of such Securities shall be made upon the terms and in the manner
stated in Sections 1106 and 1107.
ARTICLE THIRTEEN
Subordination of Securities
Section 1301. Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article (subject to the provisions of
Article Four), the payment of the principal of (and premium, if any) and
interest on each and all of the Securities are hereby expressly made subordinate
and subject in right of payment to the prior payment in full of all amounts then
due and payable in respect of all Senior Indebtedness.
Section 1302. Payment Over of Proceeds Upon Dissolution, Etc.
In the event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, arrangement, reorganization, debt restructuring or
other similar case or proceeding in connection therewith, relative to the
Company, or its creditors as such, or to its assets, or (b) any liquidation,
dissolution or other winding up of the Company, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any assignment for
the benefit of creditors or any other marshalling of assets and liabilities of
the Company, then and in any such event specified in (a), (b) or (c) above (each
such event, if any, herein sometimes referred to as a "Proceeding") the holders
of Senior Indebtedness shall be entitled to receive payment in full of all
amounts due or to become due on or in respect of all Senior Indebtedness, or
provision shall be made for such payment in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of Senior Indebtedness, before
the Holders of the Securities are entitled to receive any payment or
distribution of any kind or character, whether in cash, property or securities
(including any payment or distribution which may be payable or deliverable by
reason of the payment of any other Indebtedness of the Company subordinated to
the payment of the Securities, such payment or distribution being hereinafter
referred to as "Junior Subordinated Payment"), on account of principal of (or
premium, if any) or interest on the Securities or on account of the purchase or
other acquisition of Securities by the Company or any Subsidiary and to that end
the holders of Senior Indebtedness shall be entitled to receive, for application
to the payment thereof, any payment or distribution of any kind or character,
whether in cash, property or securities, including any Junior Subordinated
Payment, which may be payable or deliverable in respect of the Securities in any
such Proceeding. In the event that, notwithstanding the foregoing provisions of
this Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, including any Junior Subordinated
Payment, before all Senior Indebtedness is paid in full or payment thereof is
provided for in cash or cash equivalents or otherwise in a manner satisfactory
to the holders of Senior Indebtedness, and if such fact shall, at or prior to
the time of such payment or distribution, have been made known to the Trustee
or, as the case may be, such Holder, then and in such event such payment or
distribution shall be paid over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other
Person making payment or distribution of assets of the Company for application
to the payment of all Senior Indebtedness remaining unpaid, to the extent
necessary to pay all Senior Indebtedness in full, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Indebtedness.
Any taxes that have been withheld or deducted from any payment or distribution
in respect of the Securities, or any taxes that ought to have been withheld or
deducted from any such payment or distribution that have been remitted to the
relevant taxing authority, shall not be considered to be an amount that the
Trustee or the Holder of any Security receives for purposes of this Section. For
purposes of this Article only, the words "any payment or distribution of any
kind or character, whether in cash, property or securities" shall not be deemed
to include shares of stock of the Company as reorganized or readjusted, or
securities of the Company or any other corporation provided for by a plan of
reorganization or readjustment which securities are subordinated in right of
payment to all then outstanding Senior Indebtedness to substantially the same
extent as the Securities are so subordinated as provided in this Article. The
consolidation of the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution of the Company following the sale of
all or substantially all of its properties and assets as an entirety to another
Person or the liquidation or dissolution of the Company following the sale of
all or substantially all of its properties and assets as an entirety to another
Person upon the terms and conditions set forth in Article Eight shall not be
deemed a Proceeding for the purposes of this Section if the Person formed by
such consolidation or into which the Company is merged or the Person which
acquires by sale such properties and assets as an entirety, as the case may be,
shall, as a part of such consolidation, merger, or sale comply with the
conditions set forth in Article Eight.
Section 1303. Prior Payment to Senior Indebtedness Upon Acceleration
of Securities.
In the event that any Securities are declared due and payable before their
Stated Maturity, then and in such event the holders of the Senior Indebtedness
outstanding at the time such Securities so become due and payable shall be
entitled to receive payment in full of all amounts due on or in respect of such
Senior Indebtedness, or provision shall be made for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, before the Holders of the Securities are entitled to receive any
payment (including any payment which may be payable by reason of the payment of
any other indebtedness of the Company being subordinated to the payment of the
Securities) by the Company on account of the principal of (or premium, if any)
or interest on the Securities or on account of the purchase or other acquisition
of Securities by the Company or any Subsidiary; provided, however, that nothing
in this Section shall prevent the satisfaction of any sinking fund payment in
accordance with Article Twelve by delivering and crediting pursuant to Section
1202 Securities which have been acquired (upon redemption or otherwise) prior to
such declaration of acceleration. In the event that, notwithstanding the
foregoing, the Company shall make any payment to the Trustee or the Holder of
any Security prohibited by the foregoing provisions of this Section, and if such
fact shall, at or prior to the time of such payment, have been made known to the
Trustee or, as the case may be, such Holder, then and in such event such payment
shall be paid over and delivered forthwith to the Company. The provisions of
this Section shall not apply to any payment with respect to which Section 1302
would be applicable.
Section 1304. No Payment When Senior Indebtedness in Default.
(a) In the event and during the continuation of any default in the payment
of principal of (or premium, if any) or interest or any other payment on any
Senior Indebtedness, or in the event that any event of default with respect to
any Senior Indebtedness shall have occurred and be continuing and shall have
resulted in such Senior Indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise have become due and payable,
unless and until such event of default shall have been cured or waived or shall
have ceased to exist and such acceleration shall have been rescinded or
annulled, or (b) in the event any judicial proceeding shall be pending with
respect to any such default in payment or such event of default, then no payment
(including any payment which may be payable by reason of the payment of any
other indebtedness of the Company being subordinated to the payment of the
Securities) shall be made by the Company on account of principal of (or premium,
if any) or interest on the Securities or on account of the purchase or other
acquisition of Securities by the Company or any Subsidiary; provided, however,
that nothing in this Section shall prevent the satisfaction of any sinking fund
payment in accordance with Article Twelve by delivering and crediting pursuant
to Section 1202 Securities which have been acquired (upon redemption or
otherwise) prior to such default in payment or event of default or which have
been converted pursuant to Article Twelve. In the event that, notwithstanding
the foregoing, the Company shall make any payment to the Trustee or the Holder
of any Security prohibited by the foregoing provisions of this Section, and if
such fact shall, at or prior to the time of such payment, have been made known
to the Trustee or, as the case may be, such Holder, then and in such event such
payment shall be paid over and delivered forthwith to the Company. The
provisions of this Section shall not apply to any payment with respect to which
Section 1302 would be applicable.
Section 1305. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture or in any
of the Securities shall prevent (a) the Company, at any time except during the
pendency of any Proceeding referred to in Section 1302 or under the conditions
described in Sections 1303 and 1304, from making payments at any time of
principal of (and premium, if any) or interest on the Securities, or (b) the
application by the Trustee of any money deposited with it hereunder to the
payment of or on account of the principal of (and premium, if any) or interest
on the Securities or the retention of such payment by the Holders, if, at the
time of such application by the Trustee, it did not have knowledge that such
payment would have been prohibited by the provisions of this Article.
Section 1306. Subrogation to Rights of Holders of Indebtedness.
Subject to the payment in full of all Indebtedness, or the provision for
such payment in cash or cash equivalents or otherwise in a manner satisfactory
to the holders of Indebtedness, the Holders of the Securities shall be
subrogated to the extent of the payments or distributions made to the holders of
such Indebtedness pursuant to the provisions of this Article (equally and
ratably with the holders of all indebtedness of the Company which by its express
terms is subordinated to indebtedness of the Company to substantially the same
extent as the Securities are subordinated to the Indebtedness and is entitled to
like rights of subrogation by reason of any payments or distributions made to
holders of such Indebtedness) to the rights of the holders of such Indebtedness
to receive payments or distributions of cash, property and securities applicable
to the Indebtedness until the principal of (and premium, if any) and interest on
the Securities shall be paid in full. If the Trustee or the Holders of the
Securities are not for any reason entitled to be subrogated to the rights of
holders of Indebtedness in respect of such payment or distribution, then the
Trustee or the Holders of the Securities may require each holder of Indebtedness
to whom any such payment or distribution is made as a condition to such payment
or distribution to assign its Indebtedness to the extent of such payment or
distribution and all rights with respect thereto to the Trustee on behalf of the
Holders. Such assignment shall not be effective until such time as all Senior
Indebtedness has been paid in full or payment thereof provided for. For purposes
of such subrogation or assignment, no payments or distributions to the holders
of the Indebtedness of any cash, property or securities to which the Holders of
the Securities or the Trustee would be entitled except for the provisions of
this Article, and no payments over pursuant to the provisions of this Article to
the holders of Senior Indebtedness by Holders of the Securities or the Trustee,
shall, as among the Company, its creditors other than holders of Indebtedness,
and the Holders of the Securities, be deemed to be a payment or distribution by
the Company to or on account of the Indebtedness.
Section 1307. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the purpose
of defining the relative rights of the Holders of the Securities on the one hand
and the holders of Senior Indebtedness on the other hand. Nothing contained in
this Article or elsewhere in this Indenture or in the Securities is intended to
or shall (a) impair, as among the Company, its creditors other than holders of
Senior Indebtedness, and the Holders of the Securities, the obligations of the
Company, which are absolute and unconditional (and which, subject to the rights
under this Article of the holders of Senior Indebtedness are intended to rank
equally with all other general unsecured obligations of the Company), to pay to
the Holders of the Securities the principal of (and premium, if any) and
interest on the Securities as and when the same shall become due and payable in
accordance with their terms; or (b) affect the relative rights against the
Company of the Holders of the Securities and creditors of the Company other than
the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of
any Security from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture including, without limitation, filing and
voting claims in any Proceeding, subject to the rights, if any, under this
Article of the holders of Senior Indebtedness to receive cash, property or
securities otherwise payable or deliverable to the Trustee or such Holder.
Section 1308. Trustee to Effectuate Subordination.
Each Holder of a Security by his or her acceptance thereof authorizes and
directs the Trustee on his or her behalf to take such action as may be necessary
or appropriate to acknowledge or effectuate the subordination provided in this
Article and appoints the Trustee his or her attorney-in-fact for any and all
such purposes.
Section 1309. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by (i) any amendment of or addition or supplement to any
Senior Indebtedness or any instrument or agreement relating thereto (unless
otherwise expressly provided therein) or (ii) any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by the Company with the terms, provisions and
covenants of this Indenture, regardless of any knowledge thereof that any such
holder may have or be otherwise charged with. Without in any way limiting the
generality of the foregoing paragraph, the holders of Senior Indebtedness may,
at any time and from time to time, without the consent of or notice to the
Trustee or the Holders of the Securities, without incurring responsibility to
the Holders of the Securities, and without impairing or releasing the
subordination provided in this Article or the obligations hereunder of the
Holders of the Securities to the holders of Senior Indebtedness, do any one or
more of the following: (i) change the manner, place or terms of payment or
extend the time of payment of, or renew or alter or increase, Senior
Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii)
release any Person liable in any manner for the collection of Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Company and any other Person.
Section 1310. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Securities. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Indebtedness or from any trustee, agent or
representative therefor; and, prior to the receipt of any such written notice,
the Trustee, subject to the provisions of Section 601, shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section at least
two Business Days prior to the date upon which by the terms hereof any money may
become payable for any purpose (including, without limitation, the payment of
the principal of (and premium, if any) or interest on any Security), then,
anything herein contained to the contrary notwithstanding, the Trustee shall
have full power and authority to receive such money and to apply the same to the
purpose for which such money was received and shall not be affected by any
notice to the contrary which may be received by it within two Business Days
prior to such date. Subject to the provisions of Section 601, the Trustee shall
be entitled to rely on the delivery to it of a written notice by a Person
representing himself or herself to be a holder of Senior Indebtedness (or a
trustee, agent or representative therefor) to establish that such notice has
been given by a holder of Senior Indebtedness (or a trustee, agent or
representative therefor). In the event that the Trustee determines in good faith
that further evidence is required with respect to the right of any Person as a
holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.
Section 1311. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee, subject to the provisions of Section 601, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other Person
making such payment or distribution, delivered to the Trustee or to the Holders
of Securities, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article.
Section 1312. Trustee Not Fiduciary For Holders of Senior Indebtedness.
The Trustee, in its capacity as trustee under this Indenture, shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall
not be liable to any such holders if it shall in good faith mistakenly pay over
or distribute to Holders of Securities or to the Company or to any other Person
cash, property or securities to which any holders of Senior Indebtedness shall
be entitled by virtue of this Article or otherwise. With respect to the holders
of Senior Indebtedness, the Trustee undertakes to perform or to observe only
such of its covenants and obligations as are specifically set forth in this
Article Thirteen, and no implied covenants or obligations with respect to the
holders of Senior Indebtedness shall be read into this Indenture against the
Trustee. Nothing in this Indenture shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 607.
Section 1313. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article with respect to any Senior Indebtedness which may at
any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. Nothing in this Article shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 607.
Section 1314. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article shall in such case (unless the context otherwise requires)
be construed as extending to and including such Paying Agent within its meaning
as fully for all intents and purposes as if such Paying Agent were named in this
Article in addition to or in place of the Trustee.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the day and year first above written.
USF&G CORPORATION
/s/ Dan L. Hale
Dan L. Hale
Executive Vice President,
Chief Financial Officer
THE BANK OF NEW YORK, as Trustee
By: Byron Merino
Byron Merino
Assistant Treasurer
<PAGE>
Guarantee Agreement
between
USF&G CORPORATION
(as Guarantor)
and
THE BANK OF NEW YORK
(as Trustee)
Dated as of
January 10, 1997
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS
SECTION 1.01. Definitions 1
ARTICLE II TRUST INDENTURE ACT
SECTION 2.01. Trust Indenture Act; Application 4
SECTION 2.02. Lists of Holders 4
SECTION 2.03. Reports by the Guarantee Trustee 4
SECTION 2.04. Periodic Reports to Guarantee Trustee 4
SECTION 2.05. Evidence of Compliance with Conditions Precedent 5
SECTION 2.06. Events of Default; Waiver 5
SECTION 2.07. Event of Default; Notice 5
SECTION 2.08. Conflicting Interests 5
ARTICLE III POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
SECTION 3.01. Powers and Duties of the Guarantee Trustee 6
SECTION 3.02. Certain Rights of Guarantee Trustee 7
SECTION 3.03. Indemnity 9
ARTICLE IV GUARANTEE TRUSTEE
SECTION 4.01. Guarantee Trustee; Eligibility 9
SECTION 4.02. Appointment, Removal and Resignation of the
Guarantee Trustee 10
ARTICLE V GUARANTEE
SECTION 5.01. Guarantee 10
SECTION 5.02. Waiver of Notice and Demand 10
SECTION 5.03. Obligations Not Affected 11
SECTION 5.04. Rights of Holders 11
SECTION 5.05. Guarantee of Payment 12
SECTION 5.06. Subrogation 12
SECTION 5.07. Independent Obligations 12
ARTICLE VI COVENANTS AND SUBORDINATION
SECTION 6.01. Subordination 12
SECTION 6.02. Pari Passu Guarantees 12
ARTICLE VII TERMINATION
SECTION 7.01. Termination 13
ARTICLE VIII MISCELLANEOUS
SECTION 8.01. Successors and Assigns 13
SECTION 8.02. Amendments 13
SECTION 8.03. Notices 13
SECTION 8.04. Benefit 14
SECTION 8.05. Interpretation 14
SECTION 8.06. Governing Law 16
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT, dated as of January 10, 1997, is executed and
delivered by USF&G Corporation, a Maryland corporation (the "Guarantor"), and
The Bank of New York, a New York banking corporation, as trustee (the "Guarantee
Trustee"), for the benefit of the Holders (as defined herein) from time to time
of the Capital Securities (as defined herein) of USF&G Capital II, a Delaware
statutory business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Trust Agreement (as amended
from time to time in accordance with its terms, the "Trust Agreement"), dated as
of January 10, 1997 among the Trustees named therein, the Guarantor, as
Depositor, and the Holders from time to time of undivided beneficial interests
in the assets of the Issuer, the Issuer is issuing up to $100,000,000 aggregate
Liquidation Amount of its 8.47% Securities, Series B (Liquidation Amount $1,000
per capital security) (the "Capital Securities") representing preferred
undivided beneficial interests in the assets of the Issuer and having the terms
set forth in the Trust Agreement;
WHEREAS, the Capital Securities will be issued by the Issuer and the
proceeds thereof will be used to purchase the Debentures (as defined in the
Trust Agreement) of the Guarantor which will be deposited with The Bank of New
York, as Property Trustee under the Trust Agreement, as trust assets; and
WHEREAS, as incentive for the Holders to purchase Capital Securities the
Guarantor desires irrevocably and unconditionally to agree, to the extent set
forth herein, to pay to the Holders of the Capital Securities the Guarantee
Payments (as defined herein) and to make certain other payments on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of Capital
Securities, which purchase the Guarantor hereby agrees will benefit the
Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the
benefit of the Holders from time to time of the Capital Securities.
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. As used in this Guarantee Agreement, the terms
set forth below shall, unless the context otherwise requires, have the following
meanings. Capitalized or otherwise defined terms used but not otherwise defined
herein shall have the meanings assigned to such terms in the Trust Agreement as
in effect on the date hereof.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Common Securities" means the securities representing common beneficial
interests in the assets of the Issuer.
"Event of Default" means a default by the Guarantor on any of its payment
or other obligations under this Guarantee Agreement; provided, however, that,
except with respect to a default in payment of any Guarantee Payments, the
Guarantor shall have received notice of default and shall not have cured such
default within 60 days after receipt of such notice.
"Guarantee Payments" means the following payments or distributions, without
duplication, with respect to the Capital Securities, to the extent not paid or
made by or on behalf of the Issuer: (i) any accrued and unpaid Distributions
required to be paid on the Capital Securities, to the extent the Issuer shall
have funds on hand available therefor, (ii) the redemption price, including all
accrued and unpaid Distributions to the date of redemption (the "Redemption
Price"), with respect to the Capital Securities called for redemption by the
Issuer, to the extent the Issuer shall have funds on hand available therefor,
and (iii) upon a voluntary or involuntary termination, winding-up or liquidation
of the Issuer, unless Debentures are distributed to the Holders, (a) the
aggregate of the Liquidation Amount of $1,000 per Capital Security plus accrued
and unpaid Distributions on the Capital Securities to the date of payment, to
the extent the Issuer shall have funds on hand available to make such payment
or, if different, (b) the amount of assets of the Issuer remaining available for
distribution to Holders in liquidation of the Issuer (in either case, the
"Liquidation Distribution").
"Guarantee Trustee" means The Bank of New York, until a Successor Guarantee
Trustee has been appointed and has accepted such appointment pursuant to the
terms of this Guarantee Agreement and thereafter means each such Successor
Guarantee Trustee.
"Holder" means a Person in whose name a Capital Security or Securities is
registered in the Securities Register; provided, however, that in determining
whether the holders of the requisite percentage of Preferred Securities have
given any request, notice, consent or waiver hereunder, "Holder" shall not
include the Guarantor or any Affiliate of the Guarantor.
"Indenture" means the Indenture dated as of January 10, 1997, as
supplemented and amended from time to time in accordance with its terms between
the Guarantor (the "Debenture Issuer") and The Bank of New York, as trustee.
"List of Holders" has the meaning specified in Section 2.02(a).
"Majority in Liquidation Amount of the Securities" means, except as
provided by the Trust Indenture Act, a vote by the Holder(s), voting separately
as a class, of more than 50% of the Liquidation Amount of all then outstanding
Capital Securities issued by the Issuer.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by (i) any two of the following individuals: the Chairman of the Board,
the President, any Executive Vice President or any Vice President, or (ii) by
one of the foregoing individuals and by any other Vice President, the Treasurer,
an Assistant Treasurer, the Corporate Secretary or an Assistant Corporate
Secretary of such Person, and delivered to the Guarantee Trustee. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Guarantee Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definition relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate
and upon which the statements contained therein are based;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Responsible Officer" means, with respect to the Guarantee Trustee, any
Senior Vice President, any Vice President, any Assistant Vice President, the
Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, any
Trust Officer or Assistant Trust Officer or any other officer of the corporate
trust department of the Guarantee Trustee customarily performing functions
similar to those performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of that officer's knowledge of and
familiarity with the particular subject.
"Senior Indebtedness" means Senior Indebtedness as defined in the
Indenture.
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.01.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended and
as in force at the date of which this instrument was executed; provided,
however, that in the event the Trust Indenture Act of 1939 is amended after such
date, "Trust Indenture Act" means, to the extent required by any such amendment,
the Trust Indenture Act of 1939 as so amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.01. Trust Indenture Act; Application.
(a) This Guarantee Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Guarantee Agreement and
shall, to the extent applicable, be governed by such provisions.
(b) If and to the extent that any provision of this Guarantee Agreement
limits, qualifies or conflicts with the duties imposed by Section 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
SECTION 2.02. Lists of Holders.
(a) The Guarantor shall furnish or cause to be furnished to the Guarantee
Trustee (a) semiannually, on or before January 15 and July 15 of each year, a
list, in such form as the Guarantee Trustee may reasonably require, of the names
and addresses of the Holders ("List of Holders") as of a date not more than 15
days prior to the delivery thereof, and (b) at such other times as the Guarantee
Trustee may request in writing, within 30 days after the receipt by the
Guarantor of any such request, a List of Holders as of a date not more than 15
days prior to the time such list is furnished, in each case to the extent such
information is in the possession or control of the Guarantor and is not
identical to a previously supplied list of Holders or has not otherwise been
received by the Guarantee Trustee in its capacity as such and in each case
provided that no such list need be furnished if the Guarantee Trustee shall be
the registrar for the Capital Securities. The Guarantee Trustee may destroy any
List of Holders previously given to it on receipt of a new List of Holders.
(b) The Guarantee Trustee shall comply with its obligations under Section
311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act.
SECTION 2.03. Reports by the Guarantee Trustee.
Within 60 days after May 15 of each year, the Guarantee Trustee shall
provide to the Holders such reports as are required by Section 313 of the Trust
Indenture Act, if any, in the form and in the manner provided by Section 313 of
the Trust Indenture Act. The Guarantee Trustee shall also comply with the
requirements of Section 313(d) of the Trust Indenture Act.
SECTION 2.04. Periodic Reports to Guarantee Trustee.
The Guarantor shall provide to the Guarantee Trustee, the Securities and
Exchange Commission and the Holders such documents, reports and information, if
any, as required by Section 314 of the Trust Indenture Act and the compliance
certificate required by Section 314 of the Trust Indenture Act in the form, in
the manner and at the times required by Section 314 of the Trust Indenture Act.
SECTION 2.05. Evidence of Compliance with Conditions Precedent.
The Guarantor shall provide to the Guarantee Trustee such evidence of
compliance with such conditions precedent, if any, provided for in this
Guarantee Agreement that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer pursuant to Section 314(c)(1) may be given in the form of an
Officers' Certificate.
SECTION 2.06. Events of Default; Waiver.
The Holders of a Majority in Liquidation Amount of the Capital Securities
may, by vote, on behalf of the Holders, waive any past Event of Default and its
consequences except with respect to a default in payment of any Guarantee
Payments. Upon such waiver, any such Event of Default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Guarantee Agreement, but no such waiver shall extend to
any subsequent or other default or Event of Default or impair any right
consequent therefrom.
SECTION 2.07. Event of Default; Notice.
(a) The Guarantee Trustee shall, within 90 days after the occurrence of an
Event of Default, transmit by mail, first class postage prepaid, to the Holders,
notices of all Events of Default known to the Guarantee Trustee, unless such
defaults have been cured before the giving of such notice, provided, that,
except in the case of a default in the payment of a Guarantee Payment, the
Guarantee Trustee shall be protected in withholding such notice if and so long
as the Board of Directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Guarantee Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders.
(b) The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default unless the Guarantee Trustee shall have received written
notice, or a Responsible Officer charged with the administration of the Trust
Agreement shall have obtained written notice, of such Event of Default.
SECTION 2.08. Conflicting Interests.
The Trust Agreement shall be deemed to be specifically described in this
Guarantee Agreement for the purposes of clause (i) of the first proviso
contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
SECTION 3.01. Powers and Duties of the Guarantee Trustee.
(a) This Guarantee Agreement shall be held by the Guarantee Trustee for the
benefit of the Holders, and the Guarantee Trustee shall not transfer this
Guarantee Agreement to any Person except a Holder exercising his or her rights
pursuant to Section 5.04(iv) or to a Successor Guarantee Trustee on acceptance
by such Successor Guarantee Trustee of its appointment to act as Successor
Guarantee Trustee. The right, title and interest of the Guarantee Trustee shall
automatically vest in any Successor Guarantee Trustee, upon acceptance by such
Successor Guarantee Trustee of its appointment hereunder, and such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered pursuant to the appointment of such Successor
Guarantee Trustee.
(b) If an Event of Default has occurred and is continuing, the Guarantee
Trustee shall enforce this Guarantee Agreement for the benefit of the Holders.
(c) The Guarantee Trustee, before the occurrence of any Event of Default
and after the curing of all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Guarantee Agreement, and no implied covenants shall be read into this Guarantee
Agreement against the Guarantee Trustee. In case an Event of Default has
occurred (that has not been cured or waived pursuant to Section 2.06), the
Guarantee Trustee shall exercise such of the rights and powers vested in it by
this Guarantee Agreement, and use the same degree of care and skill in its
exercise thereof, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(d) No provision of this Guarantee Agreement shall be construed to relieve
the Guarantee Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and after the curing
or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Guarantee Trustee shall be
determined solely by the express provisions of this Guarantee
Agreement, and the Guarantee Trustee shall not be liable except for
the performance of such duties and obligations as are specifically
set forth in this Guarantee Agreement; and
(B) in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Guarantee
Trustee and conforming to the requirements of this Guarantee
Agreement; but in the case of any such certificates or opinions that
by any provision hereof or of the Trust Indenture Act are
specifically required to be furnished to the Guarantee Trustee, the
Guarantee Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this
Guarantee Agreement;
(ii) the Guarantee Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer of the Guarantee Trustee,
unless it shall be proved that the Guarantee Trustee was negligent in
ascertaining the pertinent facts upon which such judgment was made;
(iii) the Guarantee Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance
with the direction of the Holders of a Majority in Liquidation Amount
of the Preferred Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Guarantee
Trustee, or exercising any trust or power conferred upon the Guarantee
Trustee under this Guarantee Agreement; and
(iv) no provision of this Guarantee Agreement shall require the
Guarantee Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or
in the exercise of any of its rights or powers, if the Guarantee Trustee
shall have reasonable grounds for believing that the repayment of such
funds or liability is not reasonably assured to it under the terms of
this Guarantee Agreement or adequate indemnity against such risk or
liability is not reasonably assured to it.
SECTION 3.02. Certain Rights of Guarantee Trustee.
(a) Subject to the provisions of Section 3.01:
(i) The Guarantee Trustee may rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by this
Guarantee Agreement shall be sufficiently evidenced by an Officers'
Certificate unless otherwise prescribed herein.
(iii) Whenever, in the administration of this Guarantee Agreement, the
Guarantee Trustee shall deem it desirable that a matter be proved
or established before taking, suffering or omitting to take any action
hereunder, the Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its part,
request and rely upon an Officers' Certificate which, upon receipt of
such request from the Guarantee Trustee, shall be promptly delivered
by the Guarantor.
(iv) The Guarantee Trustee may consult with legal counsel of its
selection, and the advice or opinion of such legal counsel with
respect to legal matters shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted to be
taken by it hereunder in good faith and in accordance with such advice
or opinion. Such legal counsel may be legal counsel to the Guarantor
or any of its Affiliates and may be one of its employees. The
Guarantee Trustee shall have the right at any time to seek
instructions concerning the administration of this Guarantee Agreement
from any court of competent jurisdiction.
(v) The Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Guarantee
Agreement at the request or direction of any Holder, unless such
Holder shall have provided to the Guarantee Trustee such adequate
security and indemnity as would satisfy a reasonable person in the
position of the Guarantee Trustee against the costs, expenses
(including attorneys' fees and expenses) and liabilities that might be
incurred by it in complying with such request or direction, including
such reasonable advances as may be requested by the Guarantee Trustee;
provided that, nothing contained in this Section 3.02(a)(v) shall be
taken to relieve the Guarantee Trustee, upon the occurrence of an
Event of Default, of its obligation to exercise the rights and powers
vested in it by this Guarantee Agreement.
(vi) The Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Guarantee Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit.
(vii) The Guarantee Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through its agents or attorneys, and the Guarantee Trustee shall
not be responsible for any misconduct or negligence on the part of any
such agent or attorney appointed with due care by it hereunder.
(viii) Whenever in the administration of this Guarantee Agreement
the Guarantee Trustee shall deem it desirable to receive instructions
with respect to enforcing any remedy or right or taking any other
action hereunder, the Guarantee Trustee (A) may request instructions
from the Holders, (B) may refrain from enforcing such remedy or right
or taking such other action until such instructions are received from
a majority in Liquidation Amount of the Preferred Securities, and (C)
shall be protected in acting in accordance with such instructions.
(b) No provision of this Guarantee Agreement shall be deemed to impose any
duty or obligation on the Guarantee Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it in any
jurisdiction in which it shall be illegal, or in which the Guarantee Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Guarantee Trustee
shall be construed to be a duty to act in accordance with such power and
authority.
SECTION 3.03. Indemnity.
The Guarantor agrees to indemnify each of the Guarantee Trustee and any
successor Guarantee Trustee for, and to hold it harmless against, any and all
loss, damage, claim, liability or expense, including taxes (other than taxes
based on the income of the Guarantee Trustee), incurred without negligence or
bad faith on the part of the Guarantee Trustee, arising out of or in connection
with the acceptance or administration of this Guarantee Agreement, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder. The Guarantee Trustee will not claim or exact any lien or charge on
any Guarantee Payments as a result of any amount due to it under this Guarantee
Agreement. The provisions of this Section shall survive the termination of this
Guarantee Agreement.
ARTICLE IV
GUARANTEE TRUSTEE
SECTION 4.01. Guarantee Trustee; Eligibility.
(a) There shall at all times be a Guarantee Trustee which shall
(i) not be an Affiliate of the Guarantor; and
(ii) be a Person that is eligible pursuant to the Trust Indenture
Act to act as such and has a combined capital and surplus of at least
50 million U.S. dollars ($50,000,000), and shall be a corporation
meeting the requirements of Section 310(a) of the Trust Indenture Act.
If such corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of the supervising or examining
authority, then, for the purposes of this Section and to the extent
permitted by the Trust Indenture Act, the combined capital and surplus
of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so
published.
(b) If at any time the Guarantee Trustee shall cease to be eligible to so
act under Section 4.01(a), the Guarantee Trustee shall immediately resign in the
manner and with the effect set out in Section 4.02(c).
(c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee and Guarantor shall in all respects comply with the provisions
of Section 310(b) of the Trust Indenture Act.
SECTION 4.02. Appointment, Removal and Resignation of the Guarantee
Trustee.
(a) Subject to Section 4.02(b), the Guarantee Trustee may be (i) appointed
or removed without cause at any time by the Guarantor and (ii) removed at any
time by the Holders of a Majority in Liquidation Amount of the Preferred
Securities.
(b) The Guarantee Trustee shall not be removed until a Successor Guarantee
Trustee has been appointed and has accepted such appointment by written
instrument executed by such Successor Guarantee Trustee and delivered to the
Guarantor.
(c) The Guarantee Trustee appointed hereunder shall hold office until a
Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.
(d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.02 within 60 days after
delivery of an instrument of resignation or removal, the Guarantee Trustee
resigning or being removed may petition, at the expense of the Guarantor, any
court of competent jurisdiction for appointment of a Successor Guarantee
Trustee. Such court may thereupon, after prescribing such notice, if any, as it
may deem proper, appoint a Successor Guarantee Trustee.
ARTICLE V
GUARANTEE
SECTION 5.01. Guarantee.
The Guarantor irrevocably and unconditionally agrees to pay in full to the
Holders the Guarantee Payments (without duplication of amounts theretofore paid
by or on behalf of the Issuer), as and when due, regardless of any defense,
right of set-off or counterclaim which the Issuer may have or assert. The
Guarantor's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holders or by causing
the Issuer to pay such amounts to the Holders.
SECTION 5.02. Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of the Guarantee Agreement
and of any liability to which it applies or may apply, presentment, demand for
payment, any right to require a proceeding first against the Guarantee Trustee,
Issuer or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.
SECTION 5.03. Obligations Not Affected.
The obligations, covenants, agreements and duties of the Guarantor under
this Guarantee Agreement shall in no way be affected or impaired by reason of
the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Capital Securities to be performed
or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution or any
other sums payable under the terms of the Capital Securities or the extension of
time for the performance of any other obligation under, arising out of, or in
connection with, the Capital Securities;
(c) any failure, omission, delay or lack of diligence on the part of the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Capital Securities, or any
action on the part of the Issuer granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer or any of the assets of the
Issuer;
(e) any invalidity of, or defect or deficiency in, the Capital Securities;
(f) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.03 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain
the consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.04. Rights of Holders.
The Guarantor expressly acknowledges that: (i) this Guarantee Agreement
will be deposited with the Guarantee Trustee to be held for the benefit of the
Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee
Agreement on behalf of the Holders; (iii) the Holders of a Majority in
Liquidation Amount of the Capital Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of this Guarantee Agreement or exercising any trust
or power conferred upon the Guarantee Trustee under this Guarantee Agreement;
and (iv) any Holder may enforce this Guarantee Agreement, institute a legal
proceeding directly against the Guarantor to enforce its rights under this
Guarantee Agreement, without first instituting a legal proceeding against the
Guarantee Trustee, the Issuer or any other Person.
SECTION 5.05. Guarantee of Payment. This Guarantee Agreement creates a
guarantee of payment and not of collection. This Guarantee Agreement will not be
discharged except by payment of the Guarantee Payments in full (without
duplication of amounts theretofore paid by the Issuer) or upon distribution of
Debentures to Holders as provided in the Trust Agreement.
SECTION 5.06. Subrogation. The Guarantor shall be subrogated to all (if
any) rights of the Holders against the Issuer in respect of any amounts paid to
the Holders by the Guarantor under this Guarantee Agreement and shall have the
right to waive payment by the Issuer pursuant to Section 5.01; provided,
however, that the Guarantor shall not (except to the extent required by
mandatory provisions of law) be entitled to enforce or exercise any rights which
it may acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Guarantee Agreement,
if, at the time of any such payment, any amounts are due and unpaid under this
Guarantee Agreement. If any amount shall be paid to the Guarantor in violation
of the preceding sentence, the Guarantor agrees to hold such amount in trust for
the Holders and to pay over such amount to the Holders.
SECTION 5.07. Independent Obligations. The Guarantor acknowledges that its
obligations hereunder are independent of the obligations of the Issuer with
respect to the Capital Securities and that the Guarantor shall be liable as
principal and as debtor hereunder to make Guarantee Payments pursuant to the
terms of this Guarantee Agreement notwithstanding the occurrence of any event
referred to in subsections (a) through (g), inclusive, of Section 5.03 hereof.
ARTICLE VI
COVENANTS AND SUBORDINATION
SECTION 6.01. Subordination.
This Guarantee Agreement will constitute an unsecured obligation of the
Guarantor and will rank subordinate and junior in right of payment to all
liabilities of the Guarantor, including the Debentures, except those made pari
passu or subordinate to the Guarantee expressly by their terms.
SECTION 6.02. Pari Passu Guarantees. This Guarantee Agreement shall rank
pari passu with any similar Guarantee Agreements issued by the Guarantor on
behalf of the holders of Capital Securities issued by USF&G Capital I or USF&G
Capital II.
ARTICLE VII
TERMINATION
SECTION 7.01. Termination. This Guarantee Agreement shall terminate and be
of no further force and effect upon (i) full payment of the Redemption Price of
all Capital Securities, (ii) the distribution of Debentures to the Holders in
exchange for all of the Capital Securities in accordance with the Trust
Agreement or (iii) full payment of the amounts payable in accordance with the
Trust Agreement upon liquidation of the Issuer. Notwithstanding the foregoing,
this Guarantee Agreement will continue to be effective or will be reinstated, as
the case may be, if at any time any Holder must restore payment of any sums paid
with respect to Capital Securities or this Guarantee Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Successors and Assigns.
All guarantees and agreements contained in this Guarantee Agreement shall
bind the successors, assigns, receivers, trustees and representatives of the
Guarantor and shall inure to the benefit of the Holders of the Capital
Securities then outstanding. Except in connection with a consolidation, merger
or sale involving the Guarantor that is permitted under Article Eight of the
Indenture and pursuant to which the assignee agrees in writing to perform the
Guarantor's obligations hereunder, the Guarantor shall not assign its
obligations hereunder.
SECTION 8.02. Amendments.
Except with respect to any changes which do not adversely affect the rights
of the Holders in any material respect (in which case no consent of the Holders
will be required), this Guarantee Agreement may only be amended with the prior
approval of the Holders of not less than a Majority in Liquidation Amount of all
the outstanding Capital Securities. The provisions of Article VI of the Trust
Agreement concerning meetings of the Holders shall apply to the giving of such
approval.
SECTION 8.03. Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, telecopied or mailed by first class mail as follows:
(a) if given to the Guarantor, to the address set forth below or such other
address as the Guarantor may give notice of to the Holders:
USF&G Corporation
100 Light Street
Baltimore, Maryland 21202
Facsimile No: (410) 547-3700
Attention: Treasurer
(b) if given to the Issuer, in care of the Guarantee Trustee, at the
Issuer's (and the Guarantee Trustee's) address set forth below or such other
address as the Guarantee Trustee on behalf of the Issuer may give notice to the
Holders:
USF&G Capital II
c/o USF&G Corporation
100 Light Street
Baltimore, Maryland 21202
Facsimile No: (410) 547-3700
Attention: Treasurer
with a copy to:
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Facsimile No: (212) 815-5915
Attention: Corporate Trust Trustee Administration
(c) if given to any Holder, at the address set forth on the books and
records of the Issuer.
All notices hereunder shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
SECTION 8.04. Benefit.
This Guarantee Agreement is solely for the benefit of the Holders and is
not separately transferable from the Preferred Securities.
SECTION 8.05. Interpretation.
In this Guarantee Agreement, unless the context otherwise requires:
(a) Capitalized terms used in this Guarantee Agreement but not defined in
the preamble hereto have the respective meanings assigned to them in Section
1.01;
(b) a term defined anywhere in this Guarantee Agreement has the same
meaning throughout;
(c) all references to "the Guarantee Agreement" or "this Guarantee
Agreement" are to this Guarantee Agreement as modified, supplemented or amended
from time to time;
(d) all references in this Guarantee Agreement to Articles and Sections are
to Articles and Sections of this Guarantee Agreement unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Guarantee Agreement unless otherwise defined in this Guarantee
Agreement or unless the context otherwise requires;
(f) a reference to the singular includes the plural and vice versa; and
(g) the masculine, feminine or neuter genders used herein shall include the
masculine, feminine and neuter genders.
SECTION 8.06. GOVERNING LAW.
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICT OF LAW PRINCIPLES THEREOF.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
THIS GUARANTEE AGREEMENT is executed as of the day and year first above
written.
USF&G CORPORATION
By: /s/ Dan L. Hale
Name: Dan L. Hale
Title: Executive Vice President,
Chief Financial Officer
THE BANK OF NEW YORK, as
Guarantee Trustee
By: /s/ Byron Merino
Name: Byron Merino
Title: Assistant Treasurer
<PAGE>
Certificate Number Number of Capital Securities
PG-0001 100,000
CUSIP NO. 90330JAA8
Global Certificate Evidencing Capital Securities of
USF&G Capital II
8.47% Capital Securities, Series B
(liquidation amount $1,000 per Capital Security)
GLOBAL CAPITAL SECURITIES CERTIFICATE
THIS SECURITY IS A GLOBAL CAPITAL SECURITY CERTIFICATE WITHIN THE MEANING
OF THE TRUST AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF
THE DEPOSITORY TRUST COMPANY (THE "DEPOSITORY") OR A NOMINEE OF THE DEPOSITORY.
THE CAPITAL SECURITIES REPRESENTED HEREBY ARE EXCHANGEABLE IN WHOLE OR IN PART
FOR CAPITAL SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
TRUST AGREEMENT AND NO TRANSFER OF THE CAPITAL SECURITIES REPRESENTED HEREBY
(OTHER THAN A TRANSFER OF SUCH CAPITAL SECURITIES AS A WHOLE BY THE DEPOSITORY
TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE
DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN
SUCH LIMITED CIRCUMSTANCES.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUST OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
USF&G Capital II, a business trust created under the laws of the State of
Delaware (the "Trust"), hereby certifies that CEDE & CO. (the "Holder") is the
registered owner of one hundred thousand (100,000) capital securities of the
Trust representing an undivided beneficial interest in the assets of the Trust
and designated the USF&G Capital II 8.47% Capital Securities, Series B
(liquidation amount $1,000 per Capital Security) (the "Capital Securities"), or
such other amount (which, when taken together with all other outstanding Capital
Securities, shall not exceed 100,000 Capital Securities in the aggregate at any
time) as may be set forth in the records of the Securities Registrar. The
Capital Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer as provided in Section 5.5 of the Trust
Agreement (as defined below). The designations, rights, privileges,
restrictions, preferences and other terms and provisions of the Capital
Securities are set forth in, and this certificate and the Capital Securities
represented hereby are issued and shall in all respects be subject to the terms
and provisions of, the Amended and Restated Trust Agreement of the Trust dated
as of January 10, 1997 as the same may be amended from time to time (the "Trust
Agreement") including the designation of the terms of Capital Securities as set
forth therein. The Holder is entitled to the benefits of the Guarantee Agreement
entered into by USF&G Corporation, a Maryland corporation, and The Bank of New
York, as guarantee trustee, dated as of January 10, 1997 (the "Guarantee"), to
the extent provided therein. The Trust will furnish a copy of the Trust
Agreement and the Guarantee to the Holder without charge upon written request to
the Trust at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
This Certificate is not valid unless authenticated by the Property Trustee.
WITNESS the signature of a duly authorized Administrator of the Trust.
USF&G CAPITAL II
By: /s/ J. Kendall Huber
Name: J. Kendall Huber
Title: Administrator
This is one of the Securities referred to in the within mentioned Trust
Agreement.
Dated: January 10, 1997 THE BANK OF NEW YORK,
as Property Trustee
By: /s/ Byron Merino
<PAGE>
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT dated as of January 10, 1997, between USF&G Corporation, a
Maryland Corporation ("USF&G"), and USF&G Capital II, a Delaware business trust
(the "Trust").
WHEREAS, the Trust intends to issue and sell 8.47% Capital Securities,
Series B (the "Capital Securities") with such powers, preferences and special
rights and restrictions as are set forth in the Amended and Restated Trust
Agreement of the Trust dated as of January 10, 1997, as the same may be amended
from time to time (the "Trust Agreement") and purchase debentures from USF&G
(the "Debentures");
NOW, THEREFORE, in consideration of the purchase by each holder of the
Capital Securities, the proceeds from which shall be used to purchase the
Debentures, which purchase USF&G hereby agrees shall benefit USF&G and which
purchase USF&G acknowledges will be made in reliance upon the execution and
delivery of this Agreement, USF&G and the Trust hereby agree as follows:
ARTICLE I
Section 1.01. Guarantee by USF&G. Subject to the terms and conditions
hereof, USF&G hereby irrevocably and unconditionally guarantees to each person
or entity to whom the Trust is now or hereafter becomes indebted or liable (the
"Beneficiaries") the full payment, when and as due, of any and all Obligations
(as hereinafter defined) to such Beneficiaries. As used herein, "Obligations"
means any costs, expenses or liabilities of the Trust, other than obligations of
the Trust to pay to holders of any Capital Securities the amounts due such
holders pursuant to the terms of the Capital Securities. This Agreement is
intended to be for the benefit of, and to be enforceable by, all such
Beneficiaries, whether or not such Beneficiaries have received notice hereof.
Section 1.02. Term of Agreement. This Agreement shall terminate and be of
no further force and effect upon the later of (a) the date on which full payment
has been made of all amounts payable to all holders of all the Capital
Securities (whether upon redemption, liquidation, exchange or otherwise) and (b)
the date on which there are no Beneficiaries remaining; provided, however, that
this Agreement shall continue to be effective or shall be reinstated, as the
case may be, if at any time any holder of Capital Securities or any Beneficiary
must restore payment of any sums paid under the Capital Securities, under any
Obligation, under the Guarantee Agreement dated the date hereof by USF&G and The
Bank of New York as guarantee trustee or under this Agreement for any reason
whatsoever. This Agreement is continuing, irrevocable, unconditional and
absolute.
Section 1.03. Waiver of Notice. USF&G hereby waives notice of acceptance of
this Agreement and of any Obligation to which it applies or may apply, and USF&G
hereby waives presentment, demand for payment, protest, notice of nonpayment,
notice of dishonor, notice of redemption and all other notices and demands.
Section 1.04. No Impairment. The obligations, covenants, agreements and
duties of USF&G under this Agreement shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:
(a) the extension of time for the payment by the Trust of all or any
portion of the Obligations or for the performance of any other obligation under,
arising out of, or in connection with, the Obligations;
(b) any failure, omission, delay or lack of diligence on the part of the
Beneficiaries to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Beneficiaries with respect to the Obligations or any
action on the part of the Trust granting indulgence or extension of any kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust.
There shall be no obligation of the Beneficiaries to give notice to, or
obtain the consent of, USF&G with respect to the happening of any of the
foregoing.
Section 1.05. Enforcement. A Beneficiary may enforce this Agreement
directly against USF&G and USF&G waives any right or remedy to require that any
action be brought against the Trust or any other person or entity before
proceeding against USF&G.
ARTICLE II
Section 2.01. Binding Effect. All guarantees and agreements contained in
this Agreement shall bind the successors, assigns, receivers, trustees and
representatives of USF&G and shall inure to the benefit of the Beneficiaries.
Section 2.02. Amendment. So long as there remains any Beneficiary or any
Capital Securities are outstanding, this Agreement shall not be modified or
amended in any manner adverse to such Beneficiary or to the holders of the
Capital Securities.
Section 2.03. Notices. Any notice, request or other communication required
or permitted to be given hereunder shall be given in writing by delivering the
same against receipt therefor by facsimile transmission (confirmed by mail),
telex or by registered or certified mail, addressed as follows (and if so given,
shall be deemed given when mailed or upon receipt of an answer-back, if sent by
telex):
USF&G Capital II
c/o USF&G Corporation
100 Light Street
Baltimore, Maryland 21202
Facsimile No.: (410) 547-3700
Attention: Treasurer
USF&G Corporation
100 Light Street
Baltimore, Maryland 21202
Facsimile No.: (410) 547-3700
Attention: Treasurer
Section 2.04 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.
THIS AGREEMENT is executed as of the day and year first above written.
USF&G CORPORATION
By: /s/Dan L. Hale
Name: Dan L. Hale
Title: Executive Vice President,
Chief Financial Officer
USF&G CAPITAL II
By: /s/ J. Kendall Huber
Name: J. Kendall Huber
Administrator
<PAGE>
USF&G Corporation
(8.47% Deferrable Interest Junior Subordinated Debenture, Series B)
No. D1 $ 103,093,000
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE THEREOF. THIS SECURITY IS EXCHANGEABLE IN WHOLE OR IN PART FOR
SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS
NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT
BE TRANSFERRED IN WHOLE OR IN PART EXCEPT BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
USF&G CORPORATION, a corporation organized and existing under the laws of
Maryland (hereinafter called the "Company", which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to The Bank of New York, as Property Trustee, or
registered assigns, the principal sum of One Hundred Three Million Ninety-Three
Thousand Dollars ($103,093,000), or such other principal amount as may be set
forth in the records of the Securities Registrar hereinafter referred to in
accordance with the Indenture, on January 10, 2027 (unless the maturity is
shortened as hereinafter provided). The Company further promises to pay interest
on said principal sum from January 10, 1997 or from the most recent interest
payment date (each such date, an "Interest Payment Date") on which interest has
been paid or duly provided for semi-annually (subject to deferral as set forth
herein) in arrears on January 10 and July 10 of each year, commencing July 10,
1997, at the rate of 8.47% per annum, until the principal hereof shall have
become due and payable, plus Additional Interest, if any, until the principal
hereof is paid or duly provided for or made available for payment and on any
overdue principal and (without duplication and to the extent that payment of
such interest is enforceable under applicable law) on any overdue installment of
interest at the rate of 8.47% per annum, compounded semi-annually. The amount of
interest payable for any period less than a full interest period shall be
computed on the basis of twelve 30-day months and a 360-day year and the actual
number of days elapsed in a partial month in a period. The amount of interest
payable for any full interest period shall be computed by dividing the rate per
annum by two. In the event that any date on which interest is payable on this
Security is not a Business Day, then a payment of the interest payable on such
date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on the date the payment was originally payable.
A "Business Day" shall mean any day other than (i) a Saturday or Sunday, (ii) a
day on which banking institutions in the City of New York are authorized or
required by law or executive order to remain closed or (iii) a day on which the
Corporate Trust Office of the Trustee, or the principal office of the Property
Trustee under the Trust Agreement hereinafter referred to for USF&G Capital II,
is closed for business. The interest installment so payable, and punctually paid
or duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest installment, which shall be one Business Day prior
to the relevant Interest Payment Date. Any such interest installment not so
punctually paid or duly provided for shall forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities of this series not less than 10 days prior to such Special Record
Date, or be paid at any time in any other lawful manner not inconsistent with
the requirements of any securities exchange on which the Securities of this
series may be listed, and upon such notice as may be required by such exchange,
all as more fully provided in said Indenture.
So long as no Event of Default has occurred and is continuing, the Company
shall have the right at any time during the term of this Security to defer
payment of interest on this Security, at any time or from time to time, for up
to ten consecutive semi-annual interest payment periods with respect to each
deferral period (each an "Extension Period"), during which Extension Periods the
Company shall have the right to make partial payments of interest on any
Interest Payment Date, and at the end of which the Company shall pay all
interest then accrued and unpaid on the Securities (together with Additional
Interest thereon to the extent permitted by applicable law); provided, however,
that no Extension Period shall extend beyond the Stated Maturity of the
principal of this Security; provided, further, that during any such Extension
Period, the Company shall not, and shall not permit any Subsidiary of the
Company to (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stock, (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank pari passu in all respects with or junior in interest to this
Security or (iii) make any guarantee payments with respect to any guarantee by
the Company of the debt securities of any subsidiary of the Company if such
guarantee ranks pari passu with or junior in interest to this Security (other
than (a) in securities of the Company junior in interest to the Securities, (b)
payments made on any series of Securities upon the stated maturity of such
Securities and (c) payments of accrued dividends (and cash in lieu of fractional
shares) upon conversion into common stock of any convertible preferred stock of
the Company of any series now or hereinafter outstanding, in accordance with the
terms of such stock). Prior to the termination of any such Extension Period, the
Company may further extend the interest payment period, provided that no
Extension Period shall exceed ten (10) consecutive semi-annual periods or extend
beyond the Stated Maturity of the principal of this Security. Upon the
termination of any such Extension Period and upon the payment of all amounts
then due on any Interest Payment Date, the Company may elect to begin a new
Extension Period, subject to the above requirements. No interest shall be due
and payable during an Extension Period except at the end thereof. The Company
shall give the Property Trustee and the Debenture Trustee notice of its election
to begin any Extension Period at least one Business Day prior to the earlier of
(i) the date on which Distributions on the Capital Securities would be payable
but for such deferral or (ii) the date the Property Trustee is required to give
notice to any applicable self-regulatory organization or to holders of such
Capital Securities of the record date or the date such Distributions are
payable, but in any event not less than one Business Day prior to such record
date. For purposes hereof, the Company's Senior Indebtedness shall not be deemed
to be pari passu with this Security.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the United States, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Company, payment of
interest may be made (i) by check mailed to the address of the Person entitled
thereto as such address shall appear in the Securities Register or (ii) by wire
transfer in immediately available funds at such place and to such account as may
be designated by the Person entitled thereto as specified in the Securities
Register.
The indebtedness evidenced by this Security is, to the extent provided in the
Indenture, subordinate and junior in right of payment to the prior payment in
full of all Senior Indebtedness of the Company, and this Security is issued
subject to the provisions of the Indenture with respect thereto. The
indebtedness evidenced by this Security is not Senior Indebtedness for purposes
of the Company's Junior Subordinated Indenture dated December 24, 1996 and shall
rank pari passu with the Company's 8 1/2% Deferrable Interest Junior
Subordinated Debentures, Series A. The Holder of this Security, by accepting the
same, (a) agrees to and shall be bound by such provisions, (b) authorizes and
directs the Trustee on his behalf to take such actions as may be necessary or
appropriate to effectuate the subordination so provided and (c) appoints the
Trustee his attorney-in-fact for any and all such purposes. The Holder hereof,
by his acceptance hereof, waives all notice of the acceptance of the
subordination provisions contained herein and in the Indenture by each holder of
Senior Indebtedness, whether now outstanding or hereafter incurred, and waives
reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Security set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
USF&G CORPORATION
By: /s/ Dan L. Hale
Name: Dan L. Hale
Title: Executive Vice President,
Chief Financial Officer
Attest: By: /s/ John F. Hoffen, Jr.
John F. Hoffen, Jr., Secretary
Certificate of Authentication
This is one of the Securities referred to in the within mentioned Indenture.
Dated: January 10, 1997 The Bank of New York
as Trustee
By: /s/ Byron Merino
Authorized Signatory
[Reverse of Security]
This Security is one of a duly authorized issue of securities of the Company
(herein called the "Securities"), issued and to be issued in one or more series
under a Junior Subordinated Indenture, dated as of January 10, 1997 (herein
called the "Indenture"), between the Company and The Bank of New York, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Trustee, the Company and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered. This Security is one of the series
designated on the face hereof, limited in aggregate principal amount to
$103,093,000.
All terms used in this Security that are defined in the Indenture or in the
Amended and Restated Trust Agreement, dated as of January 10, 1997 (the "Trust
Agreement"), for USF&G Capital II, among USF&G Corporation, as Depositor, and
the Trustees named therein, shall have the meanings assigned to them in the
Indenture or the Trust Agreement, as the case may be.
USF&G has the right to redeem this Security (a) on or after January 10, 2007,
in whole or in part, or (b) at any time, in whole but not in part, on occurrence
of a Tax Event or an Investment Company Event (each, a "Special Event"), subject
to the conditions described in the Indenture.
The Redemption Price, in the case of a redemption under (a) above, shall
equal the following prices expressed in percentages of the Liquidation Amount
together with accrued Distributions to but excluding the dated fixed for
redemption. If redeemed during the 12-month period beginning January 10:
Redemption
Year Price
2007 104.235%
2008 103.812
2009 103.388
2010 102.965
2011 102.541
2012 102.118
2013 101.694
2014 101.271
2015 100.847
2016 100.424
and at 100% on or after January 10, 2017.
The Redemption Price, in the case of a redemption following a Special Event
as described under (b) above, shall equal the Make-Whole Amount for a
corresponding principal amount of this Security together with accrued
Distributions to but excluding the date fixed for redemption. The "Make-Whole
Amount" shall be equal to the greater of (i) 100% of the principal amount of
this Security or (ii) as determined by a Quotation Agent (as defined below), the
sum of the present values of the principal amount and premium payable as part of
the Redemption Price with respect to an optional redemption of this Security on
January 10, 2007, together with scheduled payments of interest from the dated
fixed for redemption to January 10, 2007 (the "Remaining Life"), in each case
discounted to the date fixed for redemption on a semi-annual basis (assuming a
360-day year consisting of 30-day months) at the Adjusted Treasury Rate (as
defined below).
In addition, if such Tax Event relates to the deductibility of interest by
the Company on this Security, and if the opinion referred to in the definition
of Tax Event states that the risk of non-deductibility would be avoided if the
maturity of this Security was shortened, the Company may, at its option, within
90 days of the occurrence of such Tax Event, shorten the maturity of this
Security by the amount stated in such opinion to be the minimum extent required
in order to avoid suck risk, but in no event may the Company shorten the
maturity to a Stated Maturity of less than 19 1/2 years from the date of
original issuance.
"Adjusted Treasury Rate" means, with respect to any prepayment date, the
Treasury Rate (as hereinafter defined) plus (i) 1.25% if such prepayment date
occurs on or before January 10, 1998 or (ii) 0.50% if such prepayment date
occurs after January 10, 1998.
"Treasury Rate" means (i) the yield, under the heading which represents the
average for the immediately prior week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor publication which is
published weekly by the Federal Reserve and which establishes yields on actively
traded United States Treasury securities adjusted to constant maturity under the
caption "Treasury Constant Maturities", for the Comparable Treasury Issue (as
hereinafter defined) or (ii) if such release (or any successor release) is not
published during the week preceding the calculation date or does not contain
such yields, the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, calculated using a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price (as hereinafter defined) for such
prepayment date. The Treasury Rate shall be calculated on the third Business Day
preceding the prepayment date.
"Comparable Treasury Issue" means with respect to any prepayment date the
United States Treasury security selected by the Quotation Agent as having a
maturity comparable to the Remaining Life that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the Remaining
Life. If no United States Treasury security has a maturity which is within a
period from three months before to three months after January 10, 2027, the two
most closely corresponding United States Treasury securities shall be used as
the Comparable Treasury Issue, and the Treasury Rate shall be interpolated or
extrapolated on a straight-line basis, rounding to the nearest month using such
securities; provided, however, that if the Remaining Life is longer than the
longest United States Treasury Security, the longest maturity United States
Treasury Security shall be used as the Comparable Treasury Issue, without
extrapolation.
"Quotation Agent" means Merrill Lynch & Co. and its successors; provided,
however, that if the foregoing shall cease to be a primary U.S. Government
securities dealer in New York City (a "Primary Treasury Dealer"), the Company
shall substitute therefor another Primary Treasury Dealer. Reference Treasury
Dealer means (i) the Quotation Agent and (ii) any other Primary Treasury Dealer
selected by the Debenture Trustee after consultation with the Company.
"Comparable Treasury Price" means (A) the average of five Reference
Treasury Dealer Quotations (as hereinafter defined) for such prepayment date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations; or (B) if the Debenture Trustee obtains fewer than three such
Reference Treasury Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any prepayment date, the average, as determined by
the Debenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such prepayment date.
In the event of redemption of this Security in part only, a new Security or
Securities of this series for the unredeemed portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
The Indenture contains provisions for satisfaction and discharge of the
entire indebtedness of this Security upon compliance by the Company with certain
conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee at any time to enter into a supplemental indenture or
indentures for the purpose of modifying in any manner the rights and obligations
of the Company and of the Holders of the Securities, with the consent of the
Holders of not less than a majority in principal amount of the Outstanding
Securities of each series to be affected by such supplemental indenture. The
Indenture also contains provisions permitting Holders of specified percentages
in principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all Securities of such series, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Security shall be conclusive and binding upon such Holder and
upon all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, if an Event of
Default with respect to this Security occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% in aggregate
outstanding principal amount of this Security may declare the principal amount
of this Security to be due and payable immediately, by a notice in writing to
the Company (and to the Trustee if given by Holders), provided that, if the
Trustee or the Holders of not less than 25% in aggregate outstanding principal
amount of this Security fails to declare the principal amount of this Security
to be immediately due and payable, the holders of at least 25% in aggregate
Liquidation Amount of the Capital Securities of USF&G Capital II then
outstanding shall have such right by a notice in writing to the Company and the
Trustee; and upon any such declaration the principal amount of and the accrued
interest (including any Additional Interest) on all the Securities of this
series shall become immediately due and payable, provided that the payment of
principal and interest (including any Additional Interest) on such Securities
shall remain subordinated to the extent provided in Article XIII of the
Indenture.
No reference herein to the Indenture and no provision of this Security or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Securities Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company maintained under Section 10.2 of the Indenture duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Securities Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees. No
service charge shall be made for any such registration of transfer or exchange,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee shall treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
This Security is issuable only in registered form without coupons in any
integral multiples of $1,000 in excess thereof. As provided in the Indenture and
subject to certain limitations therein set forth, this Security is exchangeable
for a like aggregate principal amount of Securities of this series of a
different authorized denomination, as requested by the Holder surrendering the
same.
The Company and, by its acceptance of this Security or a beneficial interest
therein, the Holder of, and any Person that acquires a beneficial interest in,
this Security agree that for United States Federal, state and local tax
purposes, it is intended that this Security constitute indebtedness.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE NEW YORK.
USF&G CORPORATION
STOCK INCENTIVE PLAN OF 1997
Purpose and Types of Awards
The purpose of the USF&G Corporation Stock Incentive Plan of 1997 (the
"Plan")is to provide officers, other key employees and directors (collectively,
"Key Persons") of USF&G Corporation and designated subsidiaries and affiliates
(collectively, the "Corporation") with additional incentives to continue and
increase their efforts with respect to the Corporation and to develop a personal
and active interest in the broader growth and greater financial success of the
Corporation.
The Plan provides for granting Key Persons options, stock appreciation
rights,stock awards and performance awards (collectively, "Awards"). Awards may
be granted separately or in tandem with other Awards, or in lieu of other
compensation or other Awards otherwise payable to a Key Person either at the
election of the Committee or, under rules approved by the Committee from time to
time, at the election of the Key Person.
ARTICLE I -- Administration
(a) The Plan shall be administered by the Compensation Committee (the
"Committee") appointed by the Board of Directors, consisting of not less than
two members, each of whom qualifies as a Non-Employee Director within the
meaning of Rule 16b-3 promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
an Outside Director within the meaning of section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the regulations promulgated
thereunder. Notwithstanding the foregoing, the Board of Directors shall be
responsible for administration of all matters under the Plan relating to
participation by and grants of Awards to directors, and all references in the
Plan to the Committee with respect to such participation by or grants of Awards
to directors shall be deemed to be references to the Board of Directors.
(b) Subject to the terms of the Plan, the Committee shall have full and
complete authority in its discretion to grant Awards under the Plan, prescribe
the form and terms of documents evidencing such Awards and establish programs
for granting Awards, and to take all other actions necessary or desirable to
carry out the purpose and intent of the Plan, including, but not limited to, the
authority to determine (i) the Key Persons to whom, and the time or times at
which, Awards shall be granted, (ii) the types of Awards to be granted, (iii)
the number of shares to be covered by each Award, and (iv) all terms and
conditions with respect to each Award.
(c) The Committee shall have full and complete authority to administer
and interpret the Plan and all documents evidencing Awards under the Plan and
all programs providing for Awards, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of the
respective documents evidencing Awards (which documents need not be identical),
to establish various programs for granting Awards under the Plan and to make all
other determinations deemed necessary or desirable for the operation and
administration of the Plan.
(d) The Committee shall have the power to designate which of the
present and future affiliated and subsidiary corporations the Key Persons of
which shall be eligible to participate in the Plan.
(e) The Committee shall have the authority to amend or modify any Award
in any manner not inconsistent with the terms of the Plan, to accelerate the
time in which any Award may be exercised or becomes payable and to waive, reduce
or limit in whole or in part, any restriction or condition with respect to such
Award, including, but not limited to, any restriction or condition with respect
to the vesting or exercisability of any Award, provided that, except as provided
in the next sentence or in Section (c) of Article III, no such action may
materially adversely affect the terms of any Award without the consent of the
holder of the Award. Notwithstanding anything in the Plan to the contrary and
without the consent of holders of Awards, the Committee, in its sole
discretion, may make any modifications to any Awards, included but not limited
to cancellation, forfeiture, surrender or other termination of the Awards in
whole or in part regardless of the vested status of the Award, in order to
facilitate any business combination that is authorized by the Board of Directors
to comply with requirements for treatment as a pooling of interests
transaction for accounting purposes under generally accepted accounting
principles.
(f) All determinations made by the Committee shall be final, binding
and conclusive.
ARTICLE II -- Participation in the Plan
Participation in the Plan shall be limited to such Key Persons of the
Corporation as shall from time to time be designated by the Committee. At the
discretion of the Committee, an individual may be deemed to be a Key Person as a
result of status or position with the Corporation or as a result of individual
efforts in connection with a specific project.
ARTICLE III -- Common Stock Subject to the Plan
(a) The total number of shares of the authorized Common Stock of the
Corporation which may be issued under the Plan pursuant to Awards shall be
5,000,000 shares. In addition to the foregoing, if, during the term of the Plan,
the Corporation repurchases any shares of Common Stock, on the open market or
otherwise, then additional shares of Common Stock may be issued pursuant to
Awards, provided that the number of such additional shares shall not exceed the
lesser of (i) the number of shares repurchased during the term of the Plan, or
(ii) 10,000,000 shares.
(b) In no event shall there be issued under the Plan more than
2,000,000 shares of Common Stock pursuant to restricted stock Awards. The total
number of shares of Common Stock that may be issued under the Plan pursuant to
Awards intended to qualify as incentive stock options under section 422 of the
Code shall not exceed 7,000,000 shares. During the term of the Plan, no Key
Person shall be eligible to receive an Award or Awards for, in the aggregate,
more than 3,000,000 shares of Common Stock.
(c) In the event of changes in the Common Stock of the Corporation by
reason of any stock dividend, split-up, recapitalization, merger, consolidation,
business combination or exchange of shares and the like, the Board of Directors
shall, in its discretion, make appropriate adjustments to the limitations
provided in Sections (a) and (b) of this Article III, and to the number, kind
and the price of shares covered by Awards granted, and shall, in its discretion
and without the consent of holders of Awards, make any other adjustments in
Awards, including but not limited to reducing the number of shares subject to
Awards or providing or mandating alternative settlement methods such as
settlement of the Awards in cash or in shares of Common Stock or other
securities of the Corporation or any other entity, or in any other matters which
relate to Awards as the Board of Directors shall, in its sole discretion,
determine to be necessary or appropriate.
(d) If for any reason an Award or a portion of an Award expires or is
terminated, surrendered, canceled, forfeited, paid in cash or reacquired
pursuant to rights reserved upon issuance thereof, then the number of shares of
Common Stock covered by the Award or portion of the Award shall be restored to
the number of shares available for Awards under the Plan pursuant to Section (a)
of this Article III and, to the extent shares of Common Stock have not been
issued pursuant to such Award, to the number of shares specified in Section (b)
of this Article III that may be issued pursuant to Awards intended to qualify as
incentive stock options. If the exercise price or the amount of taxes due with
respect to any Award is paid in shares of Common Stock or by the withholding of
shares of Common Stock issued or issuable in connection with any Award, then the
number of shares received or withheld by the Corporation shall be restored to
the number of shares available for Awards under the Plan pursuant to Section (a)
of this Article III.
ARTICLE IV -- Options
(a) The Committee in its discretion may grant options to any Key Person
on such terms and conditions as it shall, in its discretion, deem advisable,
subject to Section (b) of this Article IV. Options granted under the Plan may be
either incentive stock options intended to qualify under section 422 of the
Code, or non-qualified stock options not intended to so qualify, provided,
however, that only employees of the Corporation shall be eligible to receive
incentive stock options.
(b) The option exercise price per share with respect to each option
shall be determined by the Committee from time to time, but in no instance shall
such price be less than the Fair Market Value of a share of the authorized and
issued Common Stock of the Corporation on the date the option is granted. For
purposes of this Plan, Fair Market Value shall be the average of the high and
low sales prices quoted on the New York Stock Exchange composite listing on the
date in question or if there were no quotations on such date, on the next
preceding trading day on which there were such quotations.
ARTICLE V -- Stock Appreciation Rights
(a) The Committee in its discretion may grant stock appreciation rights
to any Key Person on such terms and conditions as it shall, in its discretion,
deem advisable.
(b) A stock appreciation right shall entitle the holder to receive a
payment having an aggregate value equal to the product of (i) the excess of (A)
the Fair Market Value on the exercise date of one share of Common Stock over (B)
the Fair Market Value on the grant date of one share of Common Stock, times (ii)
the number of shares specified by the stock appreciation right, or portion
thereof, which is exercised. Payment by the Corporation of the amount receivable
upon any exercise of a stock appreciation right may be made by the delivery of
Common Stock or cash, or any combination of Common Stock and cash, as determined
in the sole discretion of the Committee. If upon settlement of the exercise of a
stock appreciation right the holder is to receive payment in shares of Common
Stock, the number of shares shall be determined by dividing the amount of such
payment by the Fair Market Value of a share of Common Stock on the exercise
date. No fractional shares shall be used for such payment and the Committee
shall determine whether cash shall be given in lieu of such fractional shares or
whether such fractional shares shall be eliminated.
ARTICLE VI -- Stock Awards
The Committee in its discretion may grant stock awards to any Key
Person on such terms and conditions as it shall, in its discretion, deem
advisable, subject to the limitations on restricted stock set forth in Section
(b) of Article III. A stock award may be denominated in shares of Common Stock
or stock-equivalent units, and may be paid in Common Stock, in cash, or in a
combination of Common Stock and cash.
ARTICLE VII -- Performance Awards
The Committee in its discretion may make and pay performance awards to
any Key Person on such terms and conditions as it shall, in its discretion, deem
advisable. Performance awards may be payable in Common Stock, cash or a
combination thereof on account of attainment of one or more performance goals
previously established or to be established by the Committee. Performance goals
established by the Committee may be based on the Corporation's operating income
or one or more other business criteria selected by the Committee that apply to
an individual or group of individuals, a business unit or the Corporation as a
whole, over such performance period as the Committee may designate.
ARTICLE VIII -- Amendment and Disclosure
The Board of Directors may at any time amend, modify or discontinue the
Plan or waive any of its provisions, provided that, except as provided in
Section (e) of Article I, Section (c) of Article III, or Article IX, no such
amendment, modification, waiver or discontinuance shall revoke or materially
adversely affect the terms of any valid Award previously granted in accordance
with the Plan without the consent of the holder of the Award. Notwithstanding
the immediately preceding sentence, the Board of Directors and the Committee may
not take any action to increase or decrease the exercise price of any
outstanding options granted under Article IV, except as provided in Section (e)
or Article I and Section (c) of Article III.
ARTICLE IX -- Government Regulations
The obligations of the Corporation to issue any Common Stock under this
Plan shall be subject to all applicable laws, rules and regulations and the
obtaining of all such approvals by governmental agencies as may be deemed
necessary or appropriate by the Committee. The Board of Directors of the
Corporation may make such changes to the Plan and any Awards as may be necessary
or appropriate to comply with the rules and regulations of any governmental
authority.
ARTICLE X - Loans
The Corporation may grant loans or guarantee loans from a third party
to holders of Awards in conjunction with such Awards.
ARTICLE XI -- Transferability of Awards
Except as otherwise determined by the Committee, an Award under the
Plan shall be (i) nontransferable (including by pledge, assignment or otherwise)
other than by will or law of descent and distribution, and (ii) exercisable
during the lifetime of the Key Person to whom it is granted only by the Key
Person or, during the period the Key Person is under a legal disability, by the
Key Person's guardian or legal representative.
ARTICLE XII -- Withholding Taxes
Holders of Awards shall pay to the Corporation, or make provision
satisfactory to the Committee for payment of, any taxes required by law to be
withheld in respect of Awards under the Plan no later than the date of the event
creating the tax liability. The Corporation may, to the extent permitted by law,
deduct any such tax obligations from any payment of any kind otherwise due to
the holder of an Award.
ARTICLE XIII - Applicable Law
The validity, interpretation and administration of this Plan and any
rules, regulations, determinations or decisions made hereunder, and the rights
of any and all persons having or claiming to have any interest herein or
hereunder, shall be determined exclusively in accordance with the laws of the
State of Maryland, without regard to the choice of laws provisions thereof,
except to the extent federal law controls.
ARTICLE XIV -- No Employment Contract Implied
Nothing in this Plan or any Awards granted in connection with this Plan
shall be construed or deemed to create or imply any contract of employment with
any Key Person or create any rights except as specifically provided in writing.
ARTICLE XV -- Effective Date and Term of Plan
The effective date of the Plan shall be February 26, 1997, subject to
approval by the affirmative vote of a majority of the votes cast in person or by
proxy, at the Annual Shareholders' Meeting to be held on May 21, 1997, or any
adjournment thereof. The term of the Plan will be ten years, commencing on the
effective date and ending on February 26, 2007, unless sooner terminated by the
Board of Directors.
1993 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
As Amended and Restated (and Incorporating the December 1996 Amendment)
ARTICLE I - PURPOSE OF PLAN
1.1 Purpose of Plan. USF&G Corporation (the "Corporation") has adopted the 1993
Stock Plan for Non-Employee Directors (the "Plan") to provide for payment in
shares of the Corporation's Common Stock, par value $2.50 per share ("Stock"),
of a portion of the retainer fee payable to members of the Board of Directors of
the Corporation who are not employees of the Corporation or any of its
affiliates or subsidiaries ("Non-Employee Directors") and to allow Non-Employee
Directors to elect to defer receipt of all or a portion of their retainer and/or
meeting fees. The Plan also provides certain retirement benefits in the form of
Stock for Non-Employee Directors. The Plan is intended to provide Non-Employee
Directors with a larger equity interest in the Corporation in order to attract
and retain well-qualified individuals to serve as Non-Employee Directors and to
enhance the identity of interests between Non-Employee Directors and the
shareholders of the Corporation.
ARTICLE II - ELIGIBILITY AND PARTICIPATION
2.1 Eligibility and Participation. Only Non-Employee Directors shall be
eligible to participate in the Plan, and participation in the Plan is mandatory
for all Non-Employee Directors.
ARTICLE III - RETAINER STOCK AWARDS AND DEFERRAL ELECTIONS
3.1 Retainer Stock Awards.
(a) July Stock Awards. On each July 1 through and including July 1,
2001 (each such date hereinafter a "Grant Date"), in lieu of the portion of the
retainer fee payable to a Non-Employee Director on such Grant Date determined
without regard to this Plan (the "July Retainer"), and in consideration for
services previously rendered as a Non-Employee Director of the Corporation, the
Corporation shall issue to each Non-Employee Director who has served as such for
at least six (6) months immediately preceding such Grant Date, a whole number of
shares of Stock (the "July Stock Award") equal to the lesser of (1) 1,000 shares
or (2) the number of shares determined by dividing (a) $35,000 reduced by the
July Retainer, by (b) the Fair Market Value of the Stock on such Grant Date. For
purposes of this Plan, the "Fair Market Value" of Stock on any business day
shall be the average of the high and low sales prices quoted on the New York
Stock Exchange Composite Listing on the day in question, or if there was no
quotation on such date, on the next preceding business day on which there were
such quotations. To the extent that any formula described in this Section 3.1(a)
does not result in a whole number of shares of Stock, the result shall be
rounded upwards to the next whole number such that no fractional shares of Stock
shall be issued under the Plan.
(b) January Cash Retainer or Stock Award. Each Non-Employee Director
may elect to have the portion of the retainer fee that is payable in January
1997 and in each January thereafter through and including 2001, determined
without regard to this Plan (the "January Retainer"), paid in Stock rather than
in cash. Such election must be made prior to the first day of January in which
the January Retainer is paid. If the January Retainer is paid in Stock, the
Non-Employee Director shall receive a Stock certificate, pursuant to Section
6.1, evidencing the number of shares of Stock determined by dividing (a) the
January Retainer by (b) the Fair Market Value of the Stock on the date the
January Retainer is paid. To the extent that any formula described in this
Section 3.1(b) does not result in a whole number of shares of Stock, the result
shall be rounded upwards to the next whole number such that no fractional shares
of Stock shall be issued under the Plan.
(c) Committee Retainers; Election to Receive Stock or Cash. Each
Non-Employee Director may elect to have the committee retainer payable in
January and July 1997 and in each January and July thereafter through and
including 2001, determined without regard to this Plan (the "Committee
Retainer"), paid in Stock rather than in cash. Such election must be made prior
to the first day of the calendar year in which the Committee Retainer is paid.
If the Committee Retainer is paid in Stock, the Non-Employee Director shall
receive a Stock certificate, pursuant to Section 6.1, evidencing the number of
shares of Stock determined by dividing (a) the Committee Retainer by (b) the
Fair Market Value of the Stock on the date the Committee Retainer is paid. To
the extent that any formula described in this Section 3.1(c) does not result in
a whole number of shares of Stock, the result shall be rounded upwards to the
next whole number such that no fractional shares of Stock shall be issued under
the Plan.
3.2 Deferrals Elections.
(a) Deferral Elections for Stock Awards, Retainer Fees and Meeting
Fees. Payment of all or any part of the July Stock Award, January Retainer,
Committee Retainer and/or any other retainer or fees payable to a Non-Employee
Director for meetings of the Board or Board Committees or for extraordinary
services may be deferred by election of the Non-Employee Director. Each such
election must be made in writing and delivered to the Corporation prior to the
start of the calendar year for which the July Stock Award, January Retainer,
Committee Retainer and/or any other retainer or fees will be paid and must be
irrevocable for the affected calendar year. Each election shall remain in effect
until revoked in writing, and any such revocation shall become effective no
earlier than the first day of the first calendar year commencing after such
revocation is received by the Corporation.
(b) Special Election for Amounts Deferred Under the 1982 Unfunded
Deferred Compensation Plan for Non-Employee Directors of USF&G Corporation (the
"1982 Plan"). Any Non-Employee Director who deferred receipt under the 1982 Plan
of any amounts which would have been paid, but for such deferral, may elect, on
or before December 31, 1996, to have his or her account in the 1982 Plan debited
as of the date of such election by the total of such amounts, plus interest
credited thereon under the 1982 Plan (the "Transferred Amount") and have the
Transferred Amount credited to his or her Account as provided in Section 3.2(c)
of this Plan. In determining the Transferred Amount, as of any date which is not
the end of a calendar quarter, interest credited under Section 4 of the 1982
Plan shall be pro rated from the last day of the prior calendar quarter to the
date of the election to transfer such amount.
(c) Crediting Stock Units to Accounts. Amounts deferred pursuant to
Section 3.2(a) or 5.2 or transferred pursuant to Section 3.2(b) shall be
credited as of the date of the deferral or transfer to a bookkeeping reserve
account maintained by the Corporation ("Account") in units which are equivalent
in value to shares of Stock ("Stock Units"). The number of Stock Units credited
to an Account with respect to any Non-Employee Director shall equal (i) the
number of shares of any Stock Award deferred plus (ii) a number of Stock Units
equal to (I) the amount deferred under Section 3.2(a) or 5.2 of this Plan or
transferred under Section 3.2(b) of this Plan, as applicable, divided by (II)
the Fair Market Value of Stock on the date on which such cash amount would have
been paid but for the deferral election pursuant to Section 3.2(a) or 5.2 or on
the date of the election referred to in Section 3.2(b), as applicable.
(d) Fully Vested Stock Units. All Stock Units credited to a
Non-Employee Director's Account pursuant to this Article III shall be at all
times fully vested and nonforfeitable.
(e) Payment of Stock Units. Stock Units credited to a Non-Employee
Director's Account pursuant to this Article III shall be payable in an equal
number of shares of Stock in a single distribution made at such time specified
by the Non-Employee Director in the applicable deferral election, provided that
the designated payment date with respect to any election must be the first day
of a subsequent calendar year which is no earlier than twelve (12) months
following the establishment of the affected Stock Unit.
ARTICLE IV - RETIREMENT BENEFITS
4.1 Retirement Benefits for Non-Employee Directors. Each Non-Employee Director
who commences serving as such after the initial effective date of the Plan shall
have credited to his or her Account a number of Stock Units equal to $50,000
divided by the Fair Market Value of Stock on the date on which he or she becomes
a Non-Employee Director; provided, however, that notwithstanding this formula,
no such Non-Employee Director shall be credited with less than 1,500 Stock
Units. To the extent that the formula described in this Section 4.1 does not
result in a whole number of Stock Units, the result shall be rounded upwards to
the next whole number. Each Non-Employee Director who was serving as such on the
initial effective date of this Plan and who made an irrevocable election on or
before July 1, 1993, has credited to his or her Account the number of Stock
Units specified in Section 4.1 of the Plan as in effect prior to this Amendment
and Restatement.
4.2 Vesting of Stock Units. Stock Units credited to a Non-Employee Director's
Account pursuant to this Article IV shall vest at a rate of ten percent (10%)
for each complete year before and after the initial effective date of this Plan
in which the Non-Employee Director served or serves as such with respect to the
Corporation or any immediate predecessor thereof, with full vesting of such
Stock Units upon the completion of ten (10) years of service.
4.3 Payment of Stock Units. Upon termination of service as a Non-Employee
Director for any reason, the total vested Stock Units credited to such
Non-Employee Director's Account pursuant to this Article IV shall be paid to the
Non-Employee Director in an equal number of shares of Stock.
ARTICLE V - DIVIDEND EQUIVALENT PAYMENTS
5.1 Dividend Equivalent Payments. As of each dividend payment date with respect
to Stock, each Non-Employee Director shall receive a cash payment ("Dividend
Equivalent Payment") equal to the product of (i) the per-share cash dividend
payable with respect to each share of Stock on such date and (ii) the total
number of vested Stock Units credited to his or her Account as of the record
date corresponding to such dividend payment date.
5.2 Deferral of Dividend Equivalent Payments. On or before the beginning of any
calendar year, a Non-Employee Director may elect to defer receipt of all
Dividend Equivalent Payments made with respect to any dividend record date which
occurs on or after the first day of such calendar year. Any such election shall
be in writing, delivered to the Corporation, and shall remain in effect until
revoked in writing, delivered to the Corporation. Any revocation shall become
effective no earlier than the first day of the first calendar year commencing
after such revocation is received by the Corporation. Any Dividend Equivalent
Payments deferred pursuant to this Section 5.2 shall be credited to the
Non-Employee Director's Account as provided in Section 3.2(c), shall be fully
vested and shall be paid as provided in Section 4.3.
ARTICLE VI - DELIVERY OF STOCK CERTIFICATES.
6.1 Retainer Fees Paid in Stock. The Stock certificate for shares of Stock
issued to any Non-Employee Director pursuant to a July Stock Award or in lieu of
any January Retainer or Committee Retainer paid after December 1, 1996 shall be
delivered by the Corporation to the Non-Employee Director as soon as practicable
following the date such July Stock Award, January Retainer or Committee Retainer
is payable, provided that the receipt of such Stock is not deferred pursuant to
Section 3.2(a) of this Plan.
6.2 Stock Unit Payments. The Corporation shall issue and deliver to the
Non-Employee Director a Stock certificate for payment of Stock Units as soon as
practicable following the date on which Stock Units are payable.
ARTICLE VII - STOCK
7.1 Stock. The Aggregate number of shares of Stock that may be issued under the
Plan shall not exceed three hundred thousand (300,000) shares, unless such
number of shares is adjusted as provided in Article VIII of this Plan.
ARTICLE VIII - ADJUSTMENT UPON CHANGES IN CAPITALIZATION
8.1 Adjustment Upon Changes in Capitalization. In the event of a stock dividend,
stock split or combination, reclassification, recapitalization or other capital
adjustment of shares of Stock, the number of shares of Stock that may be issued
pursuant to Stock Awards and Stock Units and the number of Stock Units credited
to Accounts shall be appropriately adjusted by the Board of Directors of the
Corporation, whose determination shall be final, binding and conclusive. No
fractional shares of Stock shall be issued under the Plan on account of any
adjustment specified herein. The grant of Stock Awards or Stock Units pursuant
to this Plan shall not affect in any way the right or power of the Corporation
to issue additional Stock or other securities, make adjustments,
reclassifications, reorganizations or other changes in its corporate, capital or
business structure, to participate in a merger, consolidation or share exchange
or to transfer its assets or dissolve or liquidate.
ARTICLE IX - TERMINATION OR AMENDMENT OF PLAN
9.1 In General. The Board of Directors of the Corporation may at any time
terminate, suspend or amend this Plan.
9.2 Written Consents. No amendment may adversely affect the right of any
Non-Employee Director to receive any Stock previously granted under this Plan or
to receive any Stock pursuant to an outstanding Stock Unit without the written
consent of such Non-Employee Director.
9.3 Termination of Stock Awards. Unless the Plan is sooner terminated, no
Stock shall be granted as a Stock Award or in lieu of any retainer fees under
this Plan after July 1, 2001.
ARTICLE X - GOVERNMENT REGULATIONS
10.1 Government Regulations.
(a) The obligations of the Corporation to issue any Stock granted under
this Plan shall be subject to all applicable laws, rules and regulations and the
obtaining of all such approvals by governmental agencies as may be deemed
necessary or appropriate by the Board of Directors of the Corporation.
(b) The Board of Directors of the Corporation may make such changes as
may be necessary or appropriate to comply with the rules and regulations of any
governmental authority.
ARTICLE XI - MISCELLANEOUS
11.1 Unfunded Plan. The Plan shall be unfunded with respect to the Corporation's
obligation to pay any amounts due pursuant to Stock Units and Dividend
Equivalent Payments, and a Non-Employee Director's rights to receive any payment
of any Stock Unit or Dividend Equivalent Payment shall be not greater than the
rights of an unsecured general creditor of the Corporation.
11.2 Assignment; Encumbrances. The right to receive Stock or Stock Units under
this Plan and the right to receive payment with respect to a Stock Unit under
this Plan are not assignable or transferable and shall not be subject to any
encumbrances, liens, pledges or charges of the Non-Employee Director or his or
her creditors. Any attempt to assign, transfer or hypothecate any Stock Unit or
any right to receive Stock or Stock Units shall be void and of no force and
effect whatsoever.
11.3 Designation of Beneficiaries. A Non-Employee Director may designate a
beneficiary or beneficiaries to receive any payments under the Plan upon his
or her death.
11.4 Applicable Law. The validity, interpretation and administration of this
Plan and any rules, regulations, determinations or decisions made hereunder, and
the rights of any and all persons having or claiming to have any interest herein
or hereunder, shall be determined exclusively in accordance with the laws of the
State of Maryland, without regard to the choice of laws provisions thereof.
11.5 Headings. The headings in this Plan are for reference purposes only and
shall not affect the meaning or interpretation of this Plan.
11.6 Notices. All notices, elections or other communications made or given
pursuant to this Plan shall be in writing and shall be sufficiently made or
given if hand-delivered or mailed by certified mail, addressed to any
Non-Employee Director at the address contained in the records of the Corporation
or to the Corporation at its principal office.
ARTICLE XII - EFFECTIVE DATE OF PLAN
12.1 Effective Date of Plan. This Plan initially became effective on July 28,
1993. The Plan as amended and restated became effective on September 25, 1996.
The Plan was further amended effective December 1, 1996.
Severance Arrangements in the Event of a Change in Control
In February 1997, the Board of Directors and the Compensation Committee
of the Board approved severance arrangements covering certain executive and
senior officers in the event of a "change in control." Formal plans implementing
such arrangements have not been finalized, but the arrangements generally are
expected to provide for payments of between 1.0 and 3 times of the prior year's
base or total compensation, plus in some cases a gross-up for excise taxes
payable under Section 4999 of the Internal Revenue Code. The purpose of these
arrangements is to promote stability and management continuity. The cash
payments are payable if the officer is terminated without cause or if he or she
resigns following a material diminution in duties, reduction in compensation or
physical relocation, in each case within two (2) years following a change in
control. In some cases severance may be payable if the executive officer elects
to leave within a sixty (60) day window period beginning on the first
anniversary of the change in control. These arrangements may also provide in
some cases for continuation of medical benefits for up to three (3) years or
until subsequently employed by another employer. Severance benefits payable
under any of these arrangements are in lieu of any severance which would
otherwise be payable.
A "change in control" is deemed to occur upon the date (i) of the first
purchase of shares of the Common Stock of the Registrant pursuant to a tender
offer or an exchange offer (other than one made by the Registrant or holding
company for the Registrant) for all or any part of the Registrant's Common
Stock, (ii) of approval of the shareholders of the Registrant of a merger,
consolidation, sale, statutory or other share exchange, or disposition of all or
substantially all of the Registrant's assets in which the Registrant (or holding
company for the Registrant) will not survive as a publicly-owned corporation
operating the business it operated prior to such transaction, or (iii) on which
any entity, person or group acquires beneficial ownership of shares of the
Registrant's Common Stock (whether in one or a series of transactions), directly
or indirectly, amounting to 30% or more of the outstanding shares of such class.
COINSURANCE AGREEMENT
by and between
FIDELITY AND GUARANTY LIFE INSURANCE COMPANY
and
KEYPORT LIFE INSURANCE COMPANY
Dated as of July 26, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS........................................... 1
ARTICLE II REINSURANCE COVERAGE.................................. 7
ARTICLE III GENERAL PROVISIONS.................................... 8
ARTICLE IV REINSURANCE PREMIUMS; CEDING COMMISSION............... 13
ARTICLE V RESERVES.............................................. 15
ARTICLE VI EXPENSE ALLOWANCE..................................... 15
ARTICLE VII DEATH BENEFITS, ANNUITY PAYMENTS AND OTHER
PAYMENTS............................................ 16
ARTICLE VIII ACCOUNTING AND SETTLEMENT............................. 19
ARTICLE IX DURATION, RECAPTURE AND TERMINATION................... 22
ARTICLE X INSOLVENCY............................................ 25
ARTICLE XI ARBITRATION........................................... 26
ARTICLE XII SECURITY.............................................. 28
ARTICLE XIII REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE COMPANY........................................ 33
ARTICLE XIV REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE REINSURER...................................... 36
ARTICLE XV CONDITIONS TO CLOSING................................. 39
ARTICLE XVI MISCELLANEOUS PROVISIONS.............................. 41
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SCHEDULES
SCHEDULE A - REINSURED SPDAs
SCHEDULE B - QUARTERLY PERIOD REINSURANCE REPORTS
SCHEDULE C - ANNUAL REINSURANCE REPORTS
SCHEDULE D - POLICYHOLDER SERVICES TO BE PROVIDED
SCHEDULE E - CONSERVATION AND COMMISSION PAYMENT SERVICES TO BE
PROVIDED AND ASSOCIATED FEES
SCHEDULE F - LIST OF AGENCY AND DISTRIBUTION AGREEMENTS
SCHEDULE G - CONSENTS AND APPROVALS REQUIRED BY THE COMPANY
SCHEDULE H - CONSENTS AND APPROVALS REQUIRED BY THE REINSURER
SCHEDULE I - FORM OF OPINION OF SENIOR VICE PRESIDENT AND
GENERAL COUNSEL FOR THE REINSURER
SCHEDULE J - JOINT ELECTION UNDER IRC REGULATION 1.848-2(g)(8)
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COINSURANCE AGREEMENT
THIS COINSURANCE AGREEMENT (this "Agreement"), dated as of
July 26, 1996, is made and entered into by and between FIDELITY AND GUARANTY
LIFE INSURANCE COMPANY, a life insurance company organized under the laws of the
State of Maryland (the "Company"), and KEYPORT LIFE INSURANCE COMPANY, a life
insurance company organized under the laws of the State of Rhode Island (the
"Reinsurer").
WHEREAS, the Company has agreed to cede to the Reinsurer, on a
coinsurance basis, the Reinsured SPDAs (as defined below), and the Reinsurer has
agreed to reinsure all liabilities and obligations of the Company arising under
the Reinsured SPDAs, subject to the exclusions set forth in Section 2.03 below.
NOW, THEREFORE, in consideration of the mutual covenants and
promises and upon the terms and conditions set forth herein, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings (definitions are applicable to both the singular and the
plural forms of each term defined in this Article): "Account Values" means the
account value, as defined in the Reinsured SPDAs, which is not reduced for
surrender charges.
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"Accounting Period" means a calendar quarter, except that the initial Accounting
Period shall be the period commencing with the Effective Date and ending with
the last day of the then current calendar quarter, and the final Accounting
Period shall be the period commencing with the first day of the calendar quarter
that includes the Termination Date and ending on the Termination Date. "Act"
shall have the meaning specified in Section 13.07(b). "Annual Report" means the
report required to be prepared in accordance with Section 8.03 and providing the
data as shown on Schedule C.
"Benefits" shall have the meaning specified in Section 7.01.
"Blended Rate" means the percentage rate equal to the sum of (i) two-thirds of
the one year Treasury Note rate as of the close of business on the Business Day
immediately preceding the Closing Date plus (ii) one-third of the three year
Treasury Note rate as of the close of business on the Business Day immediately
preceding the Closing Date.
"Business Day" means any day that is not a Saturday or a Sunday or a day on
which banks in the State of New York are authorized or required by law to close.
"Cash Equivalents" means, as of any particular date, money market funds,
marketable obligations issued or guaranteed by the United States Government,
certificates of deposit, bankers' acceptances and other similar liquid
investments, in each case, with a maturity date of not more than 90 days from
the date on which any such instrument is transferred pursuant to the terms of
this Agreement, the market value of which on the date of transfer will
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be counted as equivalent to cash for purposes of satisfying the aggregate amount
of cash and Cash Equivalents required to be transferred under this Agreement.
"Ceding Commission" shall have the meaning specified in Section 4.02.
"Closing" means the closing of the transactions under this Agreement on the
Closing Date.
"Closing Date" means the date which is three Business Days following the receipt
of all required governmental and regulatory consents and approvals, including
the expiration of any applicable waiting periods, in connection with the
reinsurance of the Reinsured SPDAs, which date shall not be earlier than August
1, 1996 or later than October 31, 1996.
"Commissions and Expenses" means (i) all sales commissions, production bonuses
or other payments in cash or kind payable to duly licensed insurance agents or
other persons with respect to any Reinsured SPDAs, whether issued by the Company
prior to the Effective Date or issued by the Company, with the consent of the
Reinsurer, on or subsequent to the Effective Date, (ii) an administration
services fee of $2.00 per month per Reinsured SPDA in force at the beginning of
each month during the term of this Agreement for providing the policyholder
services listed on Schedule D with respect to the Reinsured SPDAs, (iii) the
fees listed on Schedule E for providing the conservation and commission payment
services included therein, and (iv) all direct expenses incurred in connection
with the Reinsured SPDAs, including, but not limited to (a) guaranty fund
assessments
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relating to premiums written on or subsequent to the Effective Date, (b) premium
or other taxes and (c) any charges and assessments imposed directly on or with
respect to the Reinsured SPDAs.
"Daily Interest Amount" shall have the meaning specified in Section 7.01(b).
"Effective Date" shall have the meaning specified in Section 2.01.
"Endorsements" means any endorsements to the SPDAs in force on the Effective
Date and issued pursuant to an offer from the Company which has been accepted by
an owner of a Reinsured SPDA providing for a new interest rate guarantee period
and the reimposition of surrender charges upon termination of the initial
six-year surrender charge period.
"Extracontractual Liabilities" means all liabilities for consequential,
exemplary, punitive or similar damages which relate to or arise in connection
with any alleged or actual act, error or omission by the Company, its directors,
officers, employees, agents or any of the Company's affiliates, whether
intentional or otherwise, or from any alleged or actual reckless conduct or bad
faith by the Company, its directors, officers, employees, agents or any of the
Company's affiliates, in connection with the handling of any claim under any of
the Reinsured SPDAs or in connection with the issuance, delivery, cancellation
or administration of any of the Reinsured SPDAs.
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(b) the difference between (1) the Blended Rate and (2) 6.06 percent.
"Governmental Authority" means any foreign, federal, state, local or other
court, arbitrator, administrative agency, commission or division, insurance or
securities regulatory or self-regulatory body or securities or commodities
exchange.
"Initial Reinsurance Premium" shall have the meaning specified in Section 4.01.
"Investment Assets" means the assets that are transferred to the Reinsurer in
connection with the Initial Reinsurance Premium. "NAIC" means the National
Association of Insurance Commissioners.
"Qualified Financial Institution" shall have the meaning specified in Section
09.30.97.08 of the Code of Maryland Regulations.
"Quarterly Report" means the report required to be prepared in accordance with
Section 8.02 and providing the data as shown on Schedule B.
"Quarterly Settlement" means the net amount due and payable to either party with
respect to any Accounting Period. "Recapture Event" shall have the meaning
specified in Section 9.03.
"Reinsured SPDAs" means (i) the SPDAs, including any Endorsements thereto, and
(ii) any single premium deferred annuity contracts replacing SPDAs and any
endorsements to SPDAs issued by the Company on or subsequent to the Effective
Date with the consent of the Reinsurer. Reinsured SPDAs shall not include
Retained Asset Account Funds in existence on the Effective Date.
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"Reserves" means the statutory reserves established by the Company with respect
to the liabilities arising under the Reinsured SPDAs, including, but not limited
to, excess interest reserves, claim reserves and other statutory liabilities
required to be reported by the Company on its NAIC Annual Statement Blank filed
with the State of Maryland.
"Retained Asset Account Funds" means death benefit funds on deposit with the
Company but not yet paid out or annuitized under a settlement option at the
request of the beneficiary or the estate, with regard to the Reinsured SPDAs.
"Second Commission Rate" means the percentage rate equal to the sum of (i) 1.8
percent plus (ii) the product of (a) 1.4 and (b) the difference between (1) the
Blended Rate and (2) 6.06 percent. "Short Term Rate"
means the sum of (i) the Blended Rate and (ii) 1.0 percent.
"SPDAs" means the single premium deferred annuity contracts in force on the
Effective Date and issued by the Company on the policy forms listed on Schedule
A attached hereto. "Terminal Accounting and Settlement" shall have the meaning
specified in Section 9.07.
"Termination Date" means the date on which any complete termination of this
Agreement, as provided in Article IX, is effective, either as a result of an
event described in Article IX, or as designated by the terminating party or
parties.
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<PAGE>
"Termination Report" means the report required to be prepared in accordance with
Section 9.08 and providing the calculations for the Terminal Accounting and
Settlement.
"Third Commission Rate" means the percentage rate equal to the sum of (i) 3.0
percent plus (ii) the product of (a) 1.4 and (b) the difference between (1) the
Blended Rate and (2) 6.06 percent. "Trust" or "Trust Account" shall mean the
Trust or Trust Account established pursuant to Article XII.
ARTICLE II
REINSURANCE COVERAGE
2.01. Coverage. Upon the terms and subject to the conditions
and other provisions of this Agreement and any required governmental and
regulatory consents and approvals, effective as of 12:01 a.m., Eastern Time, on
the Closing Date or, if the Closing Date is not the first day of the month, then
such date to be the first day of the month in which the Closing Date occurs (the
"Effective Date"), the Company hereby cedes to the Reinsurer, and the Reinsurer
hereby assumes, on a coinsurance basis, all liabilities and obligations of the
Company arising under the Reinsured SPDAs, subject to the exclusions set forth
in Section 2.03. The liability of the Reinsurer with respect to the Reinsured
SPDAs shall begin on the Effective Date.
2.02. Conditions. The reinsurance hereunder is
subject to the same limitations, terms and conditions as the
Reinsured SPDAs, except as otherwise provided in this Agreement.
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2.03. Exclusions. This Agreement does not apply to
and specifically excludes from coverage hereunder:
(a) any insurance policy or annuity contract
issued by the Company other than the
Reinsured SPDAs; or
(b) any Extracontractual Liabilities.
2.04. Plan of Reinsurance. This reinsurance shall be
on a one hundred percent (100%) coinsurance basis.
2.05. Retrocession. The Reinsurer retains the right
to retrocede all or any portion of the risk on any Reinsured
SPDA.
2.06. Other Reinsurance. During the term of this Agreement,
the Company shall not, without the prior written consent of the Reinsurer, enter
into any reinsurance agreement of any type, other than this Agreement, with
respect to the Reinsured SPDAs.
ARTICLE III
GENERAL PROVISIONS
3.01. Administration and Expenses. The Company or its
designated administrator shall continue to perform or have performed all
policyholder services as more fully described on Schedule D and the conservation
and commission payment services with respect to the Reinsured SPDAs as more
fully described on Schedule E. The Reinsurer shall pay all administration and
accounting expenses and other expenses related to maintenance of
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the Reinsured SPDAs, as part of Commissions and Expenses payable pursuant to the
provisions of Section 6.01 of this Agreement.
3.02. Voluntary Contract Changes or Reserve Assumption
Changes. The Company, on its own initiative, shall not without the prior consent
of the Reinsurer change (i) the terms and conditions of any Reinsured SPDAs, or
(ii) the assumptions, including the statutory reserve accumulation rate
assumption and the interpretation of NAIC regulations and guidelines relating to
the calculation of statutory reserves, used by the Company to establish the
Reserves with respect to the Reinsured SPDAs. The Reinsurer shall share,
according to the percentage specified in Section 2.04 of this Agreement, in any
contract changes or Reserve changes required by any regulatory authority having
jurisdiction over the Company in the ordinary course of exercising its powers or
otherwise required by law. In the event of an increase in the Reserves directly
caused by changes in the Company's interpretation, on its own initiative, of
NAIC regulations and guidelines relating to the calculation of the Reserves, the
Company and the Reinsurer shall attempt in good faith to determine the cost of
holding the additional amount of Reserves required by such changes; provided,
however, that if the Company and the Reinsurer are unable to resolve any
disagreement with respect to such cost, then the matter shall be referred to
arbitration pursuant to the terms of Article XI, at the initiative of either
party.
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3.03. Inspection.
(a) Subject to reasonable advance notice to the Company, the
Reinsurer or its designated representative may inspect, at the offices of the
Company or its designated representative or wherever such records are located,
any and all books, documents or records of the Company reasonably relating to
the Reinsured SPDAs during normal business hours for such period as this
Agreement is in effect or for as long thereafter as the Company seeks
performance by the Reinsurer pursuant to the terms of this Agreement. While
performing any such inspection, the Reinsurer or its designated representative
shall use its best efforts to minimize any disruption to the Company's normal
business operations. Upon the Reinsurer's reasonable request, copies of such
records shall be furnished to the Reinsurer, at the expense of the Reinsurer.
The information obtained by the Reinsurer shall be treated as confidential
material and proprietary to the Company and shall be used by the Reinsurer only
for purposes relating to reinsurance of the Reinsured SPDAs under this
Agreement. The Reinsurer's rights under this Section shall survive termination
of this Agreement.
(b) Subject to reasonable notice to the Reinsurer, the Company
or its designated representative may inspect, at the offices of the Reinsurer or
its designated representative or wherever such records are located, any and all
books, documents, or records of the Reinsurer reasonably relating to the
Reinsured SPDAs during normal business hours for such period as this Agreement
is in effect or for as long thereafter as Reinsurer
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seeks performance by the Company pursuant to the terms of this Agreement. While
performing any such inspection, the Company or its designated representative
shall use its best efforts to minimize any disruption to the Reinsurer's normal
business operations. Upon the Company's reasonable request, copies of such
records shall be furnished to the Company, at the expense of the Company. The
information obtained by the Company shall be treated as confidential material
and proprietary to the Reinsurer and shall be used by the Company only for
purposes relating to reinsurance of the Reinsured SPDAs under this Agreement.
The Company's rights under this Section shall survive termination of this
Agreement.
3.04. Misunderstandings and Oversights. If any delay,
omission, error or failure to pay amounts due or to perform any other act
required by this Agreement is unintentional and caused by misunderstanding or
oversight, the Company and the Reinsurer will adjust the situation to what it
would have been had the misunderstanding or oversight not occurred and the
reinsurance provided hereunder shall not be invalidated. The party first
discovering such misunderstanding or oversight, or act resulting from the
misunderstanding or oversight, will notify the other party in writing promptly
upon discovery thereof, and the parties shall act to correct such
misunderstanding or oversight within twenty (20) Business Days of receipt of
such notice. However, this Section shall not be construed as a waiver by either
party of its right to enforce strictly the terms of this Agreement.
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3.05. Reinstatements. If a Reinsured SPDA that is or has been
reduced, terminated, or lapsed is reinstated while this Agreement is in force,
the reinsurance for such Reinsured SPDA shall be reinstated automatically to the
amount that would be in force if the Reinsured SPDA had not been reduced,
terminated, or lapsed. The Company will pay to the Reinsurer all amounts
received or charged by the Company in connection with the reinstatement.
3.06. Setoff and Recoupment. Any debts or credits, matured or
unmatured, liquidated or unliquidated, regardless of when they arose or were
incurred, in favor of or against either the Company or the Reinsurer with
respect to this Agreement are deemed mutual debts or credits, as the case may
be, and shall be setoff from any amounts due to the Company or the Reinsurer
hereunder, as the case may be, and only the net balance shall be allowed or
paid. This setoff provision (to the extent permitted by law) shall not be
modified or reconstrued due to the insolvency, liquidation, rehabilitation,
conservatorship, or receivership of either party.
3.07. Payments. All payments made pursuant to this Agreement
(other than the transfer of Investment Assets in connection with the Initial
Reinsurance Premium described in Section 4.01 of this Agreement) shall be in
cash or Cash Equivalents and shall be made in immediately available funds or
assets acceptable to the Company (at market value) as agreed by the parties. If
a transfer of assets is agreed upon, the party making the transfer shall deliver
the assets to the other party
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along with such deeds, bills of sale, endorsements, assignments and other good
and sufficient instruments of conveyance and transfer reasonably acceptable to
the parties as shall be effective to vest in the party receiving the assets all
of the right, title and interest of the transferring party in and to the assets.
3.08. Age, Sex and Other Adjustments. If the Company's
liability under any of the Reinsured SPDAs is changed because of a misstatement
of age or sex or any other material facts, the Reinsurer shall share, according
to the percentage specified in Section 2.04 of this Agreement, in any such
change.
ARTICLE IV
REINSURANCE PREMIUMS; CEDING COMMISSION
4.01. Initial Reinsurance Premium. As consideration
for the assumption by the Reinsurer of the liabilities under this Agreement, on
the Closing Date, the Company shall transfer to the Reinsurer (i) Investment
Assets with an aggregate fair market value to the Company equal to one hundred
percent (100%) of the Reserves with respect to the Reinsured SPDAs as of the
close of business on the Business Day immediately preceding the Effective Date
plus (ii) an amount equal to the Short Term Rate per annum on such Investment
Assets from the Effective Date until the close of business on the Business Day
immediately preceding the Closing Date (the "Initial Reinsurance Premium"). The
Company shall deliver to the Reinsurer possession of the Investment Assets and
such deeds, bills of sale, endorsements, assignments and other
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good and sufficient instruments of conveyance and transfer in form and substance
reasonably acceptable to the parties as shall be effective to vest in the
Reinsurer all of the right, title and interest of the Company in and to the
Investment Assets. Payment of the Initial Reinsurance Premium shall be a
condition precedent of reinsurance coverage hereunder.
4.02. Ceding Commission. On the Closing Date, the
Reinsurer shall pay a ceding commission (the "Ceding Commission")
to the Company in an amount equal to the sum of:
(i) the product of (a) the Reserves as of the close of
business on the Business Day immediately preceding the Effective Date
allocated to the SPDAs with sixth year anniversary dates on or prior to
the date which is 45 days prior to the Effective Date and (b) the First
Commission Rate;
(ii) the product of (a) the Reserves as of the close of
business on the Business Day immediately preceding the Effective Date
allocated to the SPDAs with sixth year anniversary dates subsequent to
the date which is 45 days prior to the Effective Date for which
Endorsements have not been issued and (b) the Second Commission Rate;
(iii) the product of (a) the Reserves as of the close of
business on the Business Day immediately preceding the Effective Date
allocated to the SPDAs for which Endorsements have been issued prior to
the Effective Date and (b) the Third Commission Rate; and
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(iv) an amount equal to the Short Term Rate per annum on the
sum of the amounts calculated pursuant to subsections (i), (ii) and
(iii) above from the Effective Date until the close of business on the
Business Day immediately preceding the Closing Date.
Such amount shall be paid in cash or Cash Equivalents by the Reinsurer and shall
be netted against the Initial Reinsurance Premium in accordance with Section
3.06.
ARTICLE V
RESERVES
5.01. Reserves and Reserve Credits. The Reinsurer shall
establish and maintain adequate Reserves with respect to the Reinsured SPDAs as
necessary to enable the Company to take full reinsurance reserve credit
contemplated by this Agreement on its statutory balance sheet filed with the
Insurance Department of all states in which the Company files its annual
statement.
ARTICLE VI
EXPENSE ALLOWANCE
6.01. Expense Allowance. The Reinsurer shall pay the Company,
in accordance with Section 8.01(a), an expense allowance equal to 100.14% of the
Commissions and Expenses incurred and paid by the Company during the term of
this Agreement with respect to the Reinsured SPDAs; provided, however, the
Reinsurer expressly agrees that the Company's right to receive reimbursement for
guaranty fund assessments as part of
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Commissions and Expenses shall survive the termination of this Agreement.
ARTICLE VII
DEATH BENEFITS, ANNUITY PAYMENTS AND OTHER PAYMENTS
7.01. Death Benefits, Annuity Payments and Surrender
or Withdrawal Payments.
(a) The Reinsurer shall reimburse the Company, in accordance
with Sections 7.01(b) and 8.01(b), for an amount equal to 100.14% of the sum of
all (i) death benefits, (ii) surrender or withdrawal payments and (iii) periodic
payments under annuity settlement options elected by the owner, and paid by the
Company, with respect to Reinsured SPDAs that become due on or after the
Effective Date (such death benefits and other payments referred to in the
foregoing clause (i), (ii) and (iii) are referred to collectively as
"Benefits"). The reimbursement for Benefits shall be net of surrender charges
pursuant to the terms of the relevant Reinsured SPDAs.
(b) On the Closing Date, the Reinsurer shall reimburse
the Company for an amount equal to the sum of:
(i) 100.14% of any Benefits paid by the Company in respect of
Reinsured SPDAs from the Effective Date until the close of business on
the Business Day immediately preceding the Closing Date; and
(ii) an amount equal to the sum of the Daily Interest Amount
for each day from and including the Effective Date until the close of
business on the Business Day immediately
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preceding the Closing Date. For purposes of this Section, the Daily
Interest Amount means the product of (a) the cumulative amount of
Benefits paid as of the close of business on each day on or subsequent
to the Effective Date and (b) the Short Term Rate per annum.
The amount calculated pursuant to this Section 7.01(b) shall be paid in cash or
Cash Equivalents by the Reinsurer and shall be netted against the Initial
Reinsurance Premium in accordance with Section 3.06.
7.02. Liability and Payment. Unless the Reinsurer has made the
election provided in Section 7.03 to participate in the contest, compromise or
litigation of a claim, the Reinsurer will accept the decision of the Company on
payment of a claim on a Reinsured SPDA. The Reinsurer will pay claims (including
expenses incurred in connection with such claims) for Benefits (other than for
the payment of periodic annuity payments if elected by the owner or annuitant)
attributable to Reinsured SPDAs in a lump sum to the Company without regard to
the form of claim settlement payable by the Company.
7.03. Contested Claims. The Company will provide notice to the
Reinsurer of its intention to contest, compromise, or litigate a claim
(including interpleader actions) with respect to a Reinsured SPDA. Within ten
(10) Business Days after receipt of such notice, the Reinsurer may elect to
participate in contesting a claim attributable to a Reinsured SPDA by submitting
a notice of such election to the Company. The Reinsurer shall be deemed to have
elected to not participate in such contest if it
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fails to make such election within ten (10) Business Days. If the Reinsurer
elects not to participate in such contest, it may discharge its liability by
payment to the Company of the lesser of the full amount of the claim or the full
amount of the Reinsured SPDA relating to such claim. In no event shall the
Reinsurer indemnify the Company for any Extracontractual Liabilities arising
with respect to any Reinsured SPDA, unless such Extracontractual Liabilities
result from an action caused, or specifically consented to, by the Reinsurer;
provided, however, that the Reinsurer's election to participate in the contest,
compromise or litigation of a claim with respect to a Reinsured SPDA shall not
automatically be deemed to be an action specifically consented to by the
Reinsurer for purposes of the immediately preceding clause. The Company and the
Reinsurer agree to cooperate in the prosecution of any claim contest.
ARTICLE VIII
ACCOUNTING AND SETTLEMENT
8.01. Amounts Due the Reinsurer or the Company.
(a) The payments required to be made under Section
6.01 shall be paid in cash or Cash Equivalents and shall be made monthly by wire
transfer of funds to an account designated by the Company by 11 a.m. on the
second Business Day following the end of each month with respect to the
Commissions and Expenses incurred as of the close of business on the last day of
each month (or partial month) during the term of this Agreement; provided, that
the Company notifies the Reinsurer by 2 p.m. on
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the first Business Day following the end of each month of the amounts due from
the Reinsurer with respect to such month.
(b) The payments required to be made under Section 7.01 (other
than the payment on the Closing Date pursuant to Section 7.01(b)) shall be paid
in cash or Cash Equivalents and shall be made weekly by wire transfer of funds
to an account designated by the Company by 11 a.m. on each Thursday following
the Closing Date with respect to the Benefits paid as of the close of business
on the second Business Day next preceding such Thursday; provided, that the
Company notifies the Reinsurer by 2 p.m. on the Business Day prior to such
Thursday of the amounts due from the Reinsurer with respect to such week.
(c) If amounts due to be paid by the Reinsurer to the Company
pursuant to Section 8.01(a) or 8.01(b) above cannot be determined at such dates
on an exact basis, such payments may be determined on an estimated basis, and
any adjustments subsequently required to reflect actual data shall be made on
the weekly or monthly payment date, as applicable, following the date that such
actual data is available.
(d) Except as otherwise specifically provided herein, all
other amounts due to be paid to either the Reinsurer or the Company under this
Agreement shall be determined on a net basis, giving full effect to Section 3.06
hereof, as of the last day of each Accounting Period. Any net amount due from
the Company to the Reinsurer shall be paid in cash or Cash Equivalents no later
than the day on which the Quarterly Report showing such net amount, as described
in Section 8.02, is due. Any net amount due
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from the Reinsurer to the Company shall be paid no later than ten (10) Business
Days following the receipt of such Quarterly Report from the Company. If amounts
due to be paid cannot be determined at such dates on an exact basis, such
payments may be determined on an estimated basis, and any adjustments
subsequently required to reflect actual data shall be made at the date upon
which any amended report, based on actual data, is due to be provided pursuant
to Section 8.04.
8.02. Quarterly Reports. Within ten (10) Business Days of the
end of each Accounting Period the Company shall supply the Reinsurer with a
report that shall provide the data required in Schedule B (the "Quarterly
Report"), which shall show the net amount due, if any, by the Company or the
Reinsurer, as appropriate.
8.03. Annual Reports. Within twenty (20) Business Days after
the end of each calendar year the Company shall supply the Reinsurer with a
report that shall provide the data required in Schedule C (the "Annual Report").
8.04. Best Efforts to Supply Actual Data. In preparing all
reports required in this Agreement, the Company and the Reinsurer shall make
their best efforts to supply the actual data. If the actual data cannot be
supplied with the appropriate report, the Company shall produce best estimates,
and shall provide amended reports based on actual data no more than twenty (20)
Business Days after such report was originally due.
8.05. Tax Reserves. In connection with the Annual
Report described in Section 8.03, the Company shall supply the
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Reinsurer with information with respect to tax reserves relating to the
Reinsured SPDAs.
8.06. Interest on Delayed Payments. Should any payment due to
either the Reinsurer or the Company be delayed, such delayed payment (including
any amount constituting a difference between an estimated and actual amount, as
described in Section 8.01, shall accrue interest for the period that payment is
overdue at an interest rate per annum (rounded upwards, if necessary, to the
next 1/16 of 1%) at which dollar deposits approximately equal in amount to the
overdue payments hereunder for a comparable interest period are offered by the
principal London office of Citibank, N.A. in immediately available funds in the
London Interbank Market at approximately 11 a.m., London time, two Business Days
prior to the commencement of such interest period; each change in such interest
rate shall be effective on the date such change is announced as effective.
ARTICLE IX
DURATION, RECAPTURE AND TERMINATION
9.01. Duration. Except as otherwise provided herein,
this Agreement shall be unlimited in duration.
9.02. Reinsurer's Liability. The Reinsurer's
liability with respect to any Reinsured SPDA will terminate on
the earliest of: (i) the date the Reinsured SPDA is recaptured;
(ii) the date the Company's liability on such Reinsured SPDA is
terminated; or (iii) the date this Agreement is terminated. In
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no event should any interpretation of this Section 9.02 imply a unilateral right
of the Reinsurer to terminate this Agreement.
9.03. Termination Due to Recapture. The Company shall have the
right, on five (5) Business Days' written notice to the Reinsurer (the
"Recapture Election Notice"), to terminate this Agreement and recapture the
Reinsured SPDAs in full, such recapture and termination to be effective as of
the next Business Day following the end of such notice period, in the event that
(i) the Standard & Poor's Corporation Claims-Paying Ability rating of the
Reinsurer becomes less than BBB- (or other equivalent rating used by Standard &
Poor's Corporation) or the Moody's Investors Service, Inc. Financial Strength
rating of the Reinsurer becomes less than Baa3 (or other equivalent rating used
by Moody's Investors Service, Inc.), or (ii) the Reinsurer files a Risk-Based
Capital Report with the Commissioner of Insurance of the State of Rhode Island
(or the then current state of domicile of the Reinsurer) which indicates that
its Total Adjusted Capital is less than 150 percent of its Company Action Level
RBC (as such capitalized terms are defined in the NAIC Life Risk-Based Capital
Report Including Overview and Instructions for Companies, dated as of December
31, 1994), or (iii) the Reinsurer fails to be duly licensed to conduct a life
insurance business or accredited to act as a reinsurer in the Company's state of
domicile or in any other state or jurisdiction where failure of the Reinsurer to
be so licensed or accredited would cause the Company to be ineligible for
reserve credit for the reinsurance ceded under this Agreement, unless the
Reinsurer provides security for its
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obligations under this Agreement pursuant to the provisions of Article XII, or
(iv) the Reinsurer is the subject of an insolvency, liquidation, supervision,
conservation, rehabilitation or other similar proceeding (each a "Recapture
Event"). The Reinsurer shall provide written notice to the Company within one
Business Day of the occurrence of any Recapture Event.
9.04. Automatic Termination. If, at the end of an
Accounting Period, none of the Reinsured SPDAs are in force, this
Agreement shall automatically terminate.
9.05. Termination Due to Nonpayment. Either party may
terminate this Agreement if the other party fails to pay, when due, any amounts
due under this Agreement, provided that the non-delinquent party has given at
least twenty (20) Business Days prior written notice of its intent to terminate
for that reason. The delinquent party may avoid termination pursuant to this
Section 9.05 by paying all amounts that are delinquent and then due, including
any interest owing thereon pursuant to Section 8.06, on or before the
Termination Date specified in the written notice.
9.06. Termination by Mutual Agreement. The parties
may mutually agree to terminate this Agreement at any time.
9.07. Payments on Termination. In the event that
this Agreement is terminated pursuant to this Article IX, a net
accounting and settlement as to any balance due under this
Agreement shall be undertaken by the parties to this Agreement
(the "Terminal Accounting and Settlement"). Any net payment
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required under the Terminal Accounting and Settlement will become due as of the
Termination Date, and shall be paid in cash or Cash Equivalents by the Reinsurer
or the Company, as appropriate, no later than the day on which the Termination
Report described in Section 9.08 is due to be provided. Net payments required
under the Terminal Accounting and Settlement shall consist of:
(i) the Quarterly Settlement for the final Accounting
Period, calculated as of the Termination Date, plus any interest due
pursuant to Section 8.06; plus
(ii) the payment by the Reinsurer to the Company of an
amount equal to the Reserves as of the day immediately prior to the
Termination Date with respect to the Reinsured SPDAs; plus
(iii) in the event of a termination of this Agreement by
the Reinsurer under Section 9.05, the payment by the Company to the
Reinsurer of an amount equal to the product of (a) a fraction, the
numerator of which is the Reserves as of the Termination Date and the
denominator of which is the Reserves as of the Effective Date and (b)
the Ceding Commission.
9.08. Termination Report. Within ten (10) Business Days after
the Termination Date, the Company shall supply the Reinsurer with a report that
shall show the Terminal Accounting and Settlement (the "Termination Report"). In
the event that, subsequent to the Terminal Accounting and Settlement, an
adjustment is made with respect to any amount taken into account pursuant to
Schedule B, a supplementary accounting shall take
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place in accordance with the procedures set out in Sections 8.04 and 9.07. Any
net amount owed to the Reinsurer or the Company by reason of such supplemental
accounting, plus any interest due pursuant to Section 8.06, shall be paid within
ten (10) Business Days after the completion of such Termination Report or
supplementary accounting, as appropriate.
ARTICLE X
INSOLVENCY
10.01. Payments by Reinsurer. In the event of insolvency,
liquidation or rehabilitation of the Company, the Reinsurer hereby agrees that,
as to all reinsurance made, ceded or otherwise becoming effective hereunder, the
reinsurance shall be payable to the Company, or to its conservator, receiver,
liquidator or statutory successor on the basis of the liability of the Company
under the Reinsured SPDAs, without diminution because of the insolvency of the
Company or because the conservator, receiver, liquidator or statutory successor
of the Company has failed to pay all or a portion of any claim.
10.02. Claims. It is agreed that the conservator, receiver,
liquidator or statutory successor of the Company shall give written notice to
the Reinsurer of the pendency or submission of a claim under any Reinsured SPDAs
within a reasonable time after such claim is filed in the insolvency,
liquidation or rehabilitation proceeding. During the pendency of such claim, the
Reinsurer may investigate such claim and interpose, at its own expense, in the
proceeding where such claim
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is to be adjudicated any defense available to the Company or its conservator,
receiver, liquidator or statutory successor. The expense thus incurred by the
Reinsurer pursuant to this Section 10.02 shall be chargeable, subject to the
approval of the court, against the Company as a part of the expense of
insolvency, liquidation or rehabilitation to the extent of a proportionate share
of the benefit which accrues to the Company solely as a result of the defense
undertaken by the Reinsurer.
10.03. No Waiver of Defenses. Nothing in this Article X shall
preclude the Reinsurer from asserting any excuse or defense to payment of this
reinsurance other than the excuses or defenses of the insolvency of the Company
and the failure of the Company's conservator, receiver, liquidator or statutory
successor to pay all or a portion of any claim.
ARTICLE XI
ARBITRATION
11.01. Appointment of Arbitrators. In the event of any
disputes or differences arising hereafter between the contracting parties with
reference to any transaction under or relating in any way to this Agreement as
to which agreement between the parties hereto cannot be reached, the same shall
be decided by arbitration. Three arbitrators will decide any dispute or
difference. The arbitrators must be disinterested officers or retired officers
of life insurance or life reinsurance companies other than the two parties to
this Agreement or their affiliates. Each of the contracting parties
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agrees to appoint one of the arbitrators with the third, the "Umpire," to be
chosen by the two appointed arbitrators. In the event that either party should
fail to choose an arbitrator within twenty (20) Business Days following a
written request by the other party to do so, the requesting party may choose the
second arbitrator before entering upon arbitration. In the event that the two
arbitrators shall not be able to agree on the choice of the Umpire within twenty
(20) Business Days following their appointment, each arbitrator shall nominate
five candidates within five Business Days thereafter. Each arbitrator shall
decline four of the candidates nominated by the other arbitrator. The Umpire
shall be chosen from the two remaining candidates by drawing lots. Should the
chosen Umpire decline to serve, the candidate whose lot was not drawn shall be
appointed. This process shall continue until a candidate has agreed to serve.
11.02. Proceedings. The parties will cooperate in good faith
in the voluntary, prompt and informal exchange of non-privileged information
relevant to the arbitration. The parties will make every effort to conclude the
information exchange process within 30 days after notice that the Umpire has
been selected. Within 14 days after the Umpire is selected, the parties will
provide to each other copies of all documents in their possession or control on
which they will or may rely in support of their position. On the request of
either party, the arbitrators will conduct a conference for the purpose of
determining additional information to be exchanged. If the arbitrators determine
that the requesting party has a reasonable
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need for the information and that the request is not overly burdensome to the
opposing party, the arbitrators may order the exchange of the additional
information.
11.03. Decision. Within 60 days following the appointment of
the Umpire, each party must present its case to the arbitrators. The arbitrators
shall consider customary and standard practices in the life reinsurance
business. Within sixty (60) days after the arbitration hearing, a decision shall
be reached by a majority vote of the arbitrators. There shall be no appeal from
their written decision, which shall be final and binding upon the parties.
Judgment may be entered on the decision of the arbitrators by any court having
jurisdiction.
11.04. Expenses of Arbitration. Each party shall bear the
expense of its own arbitrator (whether selected by that party, or by the other
party pursuant to the procedures set out in Section 11.01) and related outside
attorneys' fees, and shall jointly and equally bear with the other party the
expenses of the third arbitrator.
11.05. Applicable Law. Any arbitration instituted pursuant to
this Article shall be held in the City of Baltimore, State of Maryland, and the
laws of the State of Maryland and, to the extent applicable, the Federal
Arbitration Act shall govern the interpretation and application of this
Agreement.
11.06. Survival of Article. This Article shall
survive termination of this Agreement.
11.07. Enforcement. The parties intend this Article
to be enforceable in accordance with the Federal Arbitration Act
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(9 U.S.C. ss. 1 et seq., as amended). In the event that either party refuses to
submit to arbitration as required by this Article, the other party may request
that a United States District Court compel arbitration in accordance with the
Federal Arbitration Act. Both parties consent to the jurisdiction of such a
court to enforce this Article and to confirm and enforce the performance of an
award of the arbitrators.
ARTICLE XII
SECURITY
12.01. Security. If required in order to give the Company full
reinsurance reserve credit, the Reinsurer shall comply with any necessary
financial security requirements imposed by insurance laws and regulations of the
State of Maryland and of any other state or jurisdiction with respect to which
the Company is ineligible for reserve credit for the reinsurance ceded under
this Agreement.
12.02. Establishment of Trust. If credit for reinsurance, as
required under this Article XII, is not otherwise available to the Company with
respect to the reinsurance hereunder, the Reinsurer shall enter into a trust
agreement (the "Trust Agreement") and establish a trust account for the benefit
of the Company with respect to the Reserves on or before the date of filing of
the first financial statement of the Company for which such credit for
reinsurance is required, with a bank or other financial institution acceptable
to the Company, which shall be a Qualified Financial Institution.
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12.03. Purpose of Trust. The Reinsurer agrees to deposit, on
or before the date set forth in Section 12.02, and maintain in said Trust
Account assets to be held in trust by the Trustee for the benefit of the Company
as security for the payment of the Reinsurer's obligations to the Company under
this Agreement. Such assets shall initially be in an amount that is equal to or
exceeds the Reserves, with respect to the Reinsured SPDAs, shown on the
Company's statutory financial statements as of the date set forth in Section
12.02, and shall be increased or decreased, as appropriate, for each Accounting
Period in accordance with the terms of this Agreement and the terms of the Trust
Agreement.
12.04. Trust Assets. The Reinsurer agrees that the assets so
deposited, and assets held in the trust account thereafter, shall consist only
of cash (United States legal tender), certificates of deposit (issued by a
United States bank and payable in United States legal tender), and investments
of the types permitted by Section 09.30.97.08 of the Code of Maryland
Regulations.
12.05. Title of Assets. The Reinsurer, prior to depositing
assets with the Trustee, shall execute all assignments and endorsements in
blank, and transfer legal title to the Trustee of all shares, obligations or any
other assets requiring assignments, in order that the Company, or the Trustee
upon direction of the Company, may whenever necessary negotiate any such assets
without consent or signature from the Reinsurer or any other entity.
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12.06. Settlements. All settlements of account under
the Trust Agreement between the Company and the Reinsurer shall
be made in cash or Cash Equivalents.
12.07. Withdrawals by the Company. The Reinsurer and the
Company agree that the assets in the Trust Account may be withdrawn by the
Company at any time, notwithstanding any other provisions in this Agreement,
provided such assets are applied and utilized by the Company or any successor of
the Company by operation of law, including, without limitation, any liquidator,
rehabilitator, receiver or conservator of the Company, without diminution
because of the insolvency of the Company or the Reinsurer, only for the
following purposes:
(i) to reimburse the Company for the Reinsurer's share
of surrenders, withdrawals, death benefits or other amounts specified
in Section 7.01 of this Agreement that have been paid by the Company
pursuant to the provisions of the Reinsured SPDAs;
(ii) to fund an account with the Company in an amount at
least equal to the deduction, for reinsurance ceded, from the Company's
liabilities under Reinsured SPDAs ceded under this Agreement. Such
account shall include, but not be limited to, amounts for policy
reserves, claims and losses incurred (including losses incurred but not
reported), and unearned premium reserves; and
(iii) to pay any other amounts the Company claims are
due under this Agreement.
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12.08. Withdrawals by the Reinsurer. The Reinsurer shall have
the right to seek the Company's approval to withdraw all or any part of the
assets from the Trust Account and transfer such assets to the Reinsurer,
provided that:
(i) the Reinsurer shall, at the time of withdrawal,
replace the withdrawn assets with other assets of a type permitted
hereunder having a market value equal to the market value of the assets
withdrawn, so as to maintain the Trust Account in the required amount;
or
(ii) after such withdrawal and transfer, the market
value of the Trust Account is no less than 102% of the required amount.
In the event that the Reinsurer seeks the Company's approval hereunder, the
Company shall not unreasonably or arbitrarily withhold its approval.
12.09. Return of Assets. In the event that the Company
withdraws assets from the Trust Account for the purposes set forth in Section
12.07(i) or (ii) in excess of actual amounts required to meet the Reinsurer's
obligations to the Company, or in excess of amounts determined to be due under
Section 12.07(iii), the Company shall return such excess to the Reinsurer, plus
interest at the prime (or base) rate of interest as set forth in Section 8.06 of
this Agreement. In the event of a dispute arising under this Article XII, the
arbitration panel established pursuant to Article XI of this Agreement shall
have the right to award interest at a rate that it determines to be
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equitable, and may award attorney's fees, arbitration costs and
other expenses.
12.10. Letters of Credit. At the option of the Reinsurer,
letters of credit meeting the requirements of Section 09.30.97.08 of the Code of
Maryland Regulations may be substituted in whole or in part for the Trust
Account in order to provide the credit for reinsurance required hereunder. The
letter of credit will be procured from a Qualified Financial Institution, and
may be drawn down at any time by the Company, only for the purposes set forth in
Section 12.07(i), (ii) or (iii) of this Agreement, without diminution because of
the insolvency of the Company or the Reinsurer. If the letter of credit is drawn
down, the provisions of Section 12.09 shall apply to the amount so drawn.
12.11. Expenses. All expenses of establishing and
maintaining the Trust Account or letter of credit shall be paid
by the Reinsurer.
ARTICLE XIII
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
13.01. Organization, Standing and Authority of the Company.
The Company is a life insurance company duly organized, validly existing and in
good standing under the laws of the State of Maryland and has all requisite
corporate power and authority to carry on the operations of its business as they
are now being conducted. The Company has all requisite corporate power and
authority to own and transfer ownership of the Investment Assets
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that are to be transferred in connection with the Initial
Reinsurance Premium.
13.02. Authorization. The Company has all requisite corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery by the Company of this Agreement, and the
performance by the Company of its obligations under this Agreement, have been
duly authorized by all necessary corporate action. This Agreement, when duly
executed and delivered by the Company, subject to the due execution and delivery
by the Reinsurer, will be a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
13.03. Assets. With respect to each of the
Investment Assets, no consent or other approval is required to be
obtained by the Company to permit the Company to convey, transfer
and sell the Investment Assets to the Reinsurer pursuant to this
Agreement.
13.04. No Conflict or Violation. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby in accordance with the respective terms and conditions
hereof will not (a) violate any provision of the Articles of Incorporation or
Bylaws of the Company, or (b) violate any order, judgment, injunction, award or
decree of any court, arbitrator or governmental or regulatory body against, or
binding upon, or any agreement with, or condition imposed by, any governmental
or regulatory body, foreign or domestic, binding upon the Company.
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13.05. Intermediaries and Financial Advisors. Except for
Oppenheimer & Co., Inc., no reinsurance intermediary or broker or other advisor
has acted directly or indirectly as such for, or is entitled to any compensation
from, the Company in connection with this Agreement.
13.06. Investigations. The Company will notify the Reinsurer
immediately, in writing, of any and all investigations of the Company or its
directors, principal officers or shareholders conducted by any Federal, state or
local governmental or regulatory agency other than routine state insurance
department examinations.
13.07. Approvals of Governmental Authorities.
(a) Except as set forth on Schedule G hereto, no
consent, waiver, license, approval, order or authorization of, or registration,
filing or declaration with, or notices to, any person, entity or Governmental
Authority is required to be obtained, made or given by or with respect to the
Company in connection with (i) the execution and delivery of this Agreement by
the Company, or (ii) the consummation by the Company of the transactions
contemplated hereby.
(b) Except as provided below, the Company shall take, and
shall cause its affiliates to take, all reasonable steps necessary or
appropriate, and shall use, and shall cause its affiliates to use, all
commercially reasonable efforts, to obtain as promptly as practicable all
consents, waivers, licenses, approvals, orders and authorizations of, or to make
as promptly as practicable all registrations, filings or declarations with,
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or notices to, any person, entity or Governmental Authority listed on Schedule G
attached hereto and required to be obtained by the Company or any of its
affiliates in connection with the consummation of the transactions contemplated
by this Agreement. Within five Business Days of the earlier of (i) receipt of an
interpretation from the Premerger Notification Office that the transaction
anticipated by this Agreement is not exempt from the regulatory requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations thereunder (the "Act") and (ii) August 2, 1996, the
Company shall take, and shall cause its affiliates to take, all reasonable steps
necessary and appropriate to make all necessary submissions and filings under
the Act and shall request early termination of the waiting periods under the
Act.
(c) The Company shall cooperate with the Reinsurer and its
affiliates in seeking to obtain all such consents, waivers, licenses, approvals,
orders and authorizations, and to make all such registrations, filings,
declarations and notices and shall provide, and shall cause its affiliates to
provide, such information and communications to any person, entity or
Governmental Authority as such person, entity or Governmental Authority may
reasonably request in connection therewith.
ARTICLE XIV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE REINSURER
14.01. Organization, Standing and Authority of the
Reinsurer. The Reinsurer is a life insurance company duly
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organized, validly existing and in good standing under the laws of the State of
Rhode Island and has all requisite corporate power and authority to own, lease
and operate its properties and assets and to carry on the operations of its
business as they are now being conducted. The Reinsurer is duly licensed and
admitted as an insurer or accredited as a reinsurer under the laws of all States
and jurisdictions of the United States where failure of the Reinsurer to be so
licensed and admitted or accredited would cause the Company to be ineligible for
reserve credit for the reinsurance ceded under this Agreement, and is authorized
under the laws and regulations of said States and jurisdictions to reinsure the
Reinsured SPDAs under this Agreement.
14.02. Authorization. The Reinsurer has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery by the Reinsurer of this
Agreement, and the performance by the Reinsurer of its obligations under this
Agreement, have been duly authorized by all necessary corporate action. This
Agreement, when duly executed and delivered by the Reinsurer, subject to the due
execution and delivery by the Company, will be a valid and binding obligation of
the Reinsurer, enforceable against the Reinsurer in accordance with its terms.
14.03. No Conflict or Violation. The execution,
delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby will not (a) violate any
provision of the Articles of Incorporation, Bylaws or other
charter or organizational document of the Reinsurer, or
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(b) violate any order, judgment, injunction, award or decree of any court,
arbitrator or governmental or regulatory body against, or binding upon, or any
agreement with, or condition imposed by, any governmental or regulatory body,
foreign or domestic, binding upon the Reinsurer.
14.04. Intermediaries and Financial Advisors. No
reinsurance intermediary or broker or other advisor has acted
directly or indirectly as such for, or is entitled to any
compensation from, the Reinsurer in connection with this
Agreement.
14.05. Investigations. The Reinsurer will notify the Company
immediately, in writing, of any and all investigations of the Reinsurer or its
directors, principal officers or shareholders conducted by any Federal, state or
local governmental or regulatory agency other than routine state insurance
department examinations.
14.06. Approvals of Governmental Authorities.
(a) Except as set forth on Schedule H hereto, no
consent, waiver, license, approval, order or authorization of, or registration,
filing or declaration with, or notices to, any person, entity or Governmental
Authority is required to be obtained, made or given by or with respect to the
Reinsurer in connection with (i) the execution and delivery of this Agreement by
the Reinsurer, or (ii) the consummation by the Reinsurer of the transactions
contemplated hereby.
(b) Except as provided below, the Reinsurer shall
take, and shall cause its affiliates to take, all reasonable
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steps necessary or appropriate, and shall use, and shall cause its affiliates to
use, all commercially reasonable efforts, to obtain as promptly as practicable
all consents, waivers, licenses, approvals, orders and authorizations of, or to
make as promptly as practicable all registrations, filings or declarations with,
or notices to, any person, entity or Governmental Authority listed on Schedule H
attached hereto and required to be obtained by the Reinsurer or any of its
affiliates in connection with the consummation of the transactions contemplated
by this Agreement. In addition, within two days after execution of this
Agreement, the Reinsurer shall submit, or cause to be submitted, a letter to the
Premerger Notification Office requesting an interpretation as to whether the
transaction contemplated by this Agreement is exempt from the reporting
requirements of the Act. Within five Business Days of the earlier of (i) receipt
of an interpretation from the Premerger Notification Office that the transaction
anticipated by this Agreement is not exempt from the regulatory requirements of
the Act and (ii) August 2, 1996, the Reinsurer shall take, and shall cause its
affiliates to take, all reasonable steps necessary and appropriate to make all
necessary submissions and filings under the Act and shall request early
termination of the waiting periods under the Act.
(c) The Reinsurer shall cooperate with the Company and its
affiliates in seeking to obtain all such consents, waivers, licenses, approvals,
orders and authorizations, and to make all such registrations, filings,
declarations and notices and shall
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provide, and shall cause its affiliates to provide, such information and
communications to any person, entity or Governmental Authority as such person,
entity or Governmental Authority may reasonably request in connection therewith.
14.07. Agency and Distribution Agreements. From the date of
this Agreement through the Termination Date, the Reinsurer shall not, and shall
not permit any of its affiliates to, take any action or omit to take any action
that would cause the Company to be in breach of or to violate any term or
provision of any of the Agency and Distribution Agreements listed on Schedule F
hereto. The Reinsurer shall indemnify the Company and its officers, directors,
employees, affiliates, agents, successors and assigns (the "indemnified
parties") against, and hold the indemnified parties harmless from all losses,
claims, damages and liabilities and shall reimburse the indemnified parties for
all expenses of any kind or nature whatsoever (including reasonable attorneys'
fees) as incurred, that are based upon or arise out of the breach by the
Reinsurer of its covenants and obligations provided for in this Section 14.07.
ARTICLE XV
CONDITIONS TO CLOSING
15.01. Conditions Precedent to Obligation of the
Reinsurer. The obligation of the Reinsurer to consummate the
Closing is subject to satisfaction of the following conditions at
or prior to the Closing (unless expressly waived in writing by
the Reinsurer at or prior to the Closing):
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(a) All of the terms, covenants and conditions of this
Agreement to be complied with and performed by the Company at or prior to the
Closing shall have been complied with and performed by it, and the
representations and warranties made by the Company in this Agreement shall be
true and correct at and as of the Closing, with the same force and effect as
though such representations and warranties had been made at and as of the
Closing.
(b) The Reinsurer shall have received from the Company a
certificate dated the Closing Date and signed by an executive officer of the
Company certifying that the conditions specified in subsection (a) above have
been fulfilled.
(c) All consents, waivers, licenses, approvals, orders and
authorizations of, and registrations, filings and declarations with, and notices
to, any person, entity or Governmental Authority listed on Schedule H required
in connection with the consummation of the transactions contemplated hereby
shall have been duly obtained, made or given, including the expiration of any
applicable waiting periods, and shall be in full force and effect at the
Closing.
(d) The Company shall have duly executed and delivered to the
Reinsurer the Form of Joint Election Under IRC Regulation 1.848-2(g)(8)
substantially in the form attached hereto as Exhibit J.
15.02. Conditions Precedent to Obligation of the
Company. The obligation of the Company to consummate the Closing
is subject to satisfaction of the following conditions at or
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prior to the Closing (unless expressly waived in writing by the
Company at or prior to the Closing):
(a) All of the terms, covenants and conditions of this
Agreement to be complied with and performed by the Reinsurer at or prior to the
Closing shall have been complied with and performed by it, and the
representations and warranties made by the Reinsurer in this Agreement shall be
true and correct at and as of the Closing, with the same force and effect as
though such representations and warranties had been made at and as of the
Closing.
(b) The Company shall have received from the Reinsurer a
certificate dated the Closing Date and signed by an executive officer of the
Reinsurer certifying that the conditions specified in subsection (a) above have
been fulfilled.
(c) All consents, waivers, licenses, approvals, orders and
authorizations of, and registrations, filings and declarations with, and notices
to, any person, entity or Governmental Authority listed on Schedule G required
in connection with the consummation of the transactions contemplated hereby
shall have been duly obtained, made or given, including the expiration of any
applicable waiting periods, and shall be in full force and effect.
(d) The Reinsurer shall have duly executed and delivered to
the Company the Form of Joint Election Under IRC Regulation 1.848-2(g)(8)
substantially in the form attached hereto as Exhibit J.
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(e) The Company shall have received the opinion, dated the
Closing Date, of Bernard R. Beckerlegge, Senior Vice President and General
Counsel of the Reinsurer, in form and substance acceptable to the Company,
substantially in the form attached hereto as Exhibit I.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.01. Headings and Schedules. Headings used herein
are not a part of this Agreement and shall not affect the terms
hereof. The attached Schedules are a part of this Agreement.
16.02. Notices. All notices and communications hereunder shall
be in writing and shall be deemed given if received three (3) days after
mailing, or if by telefax or by hand, when received, and if by overnight mail,
on the next day. Any written notice shall be by either certified or registered
mail, return receipt requested, or overnight delivery service (providing for
delivery receipt) or delivered by hand. All notices or communications with the
Reinsurer under this Agreement shall be addressed as follows:
Keyport Life Insurance Company
125 High Street
Boston, Massachusetts
Attention: Paul H. LeFevre, Jr.
Fax No.: (617) 526-1618
All notices and communications with the Company under this Agreement from the
date hereof until September 3, 1996 shall be directed to:
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Fidelity and Guaranty Life Insurance Company
6255 Smith Avenue
Baltimore, Maryland 21209-3653
Attention: Chief Actuary
Fax No.: (410) 205-0629
All notices and communications with the Company under this Agreement after
September 3, 1996 shall be directed to:
Fidelity and Guaranty Life Insurance Company
100 East Pratt Street
Baltimore, Maryland 21201
Attention: Chief Actuary
with copies to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: Michael Groll
Fax No.: (212) 424-8500
Changes in notice addresses or recipients may be made by the
Reinsurer or the Company by following the procedure specified in this section
rather than the procedure for amendment of this Agreement.
16.03. Severability and Governing Law. If any term or
provision of this Agreement shall be held void, illegal, or unenforceable, the
validity of the remaining portions or provisions shall not be affected thereby.
This Agreement shall be governed by the laws of the State of Maryland, without
giving effect to principles of conflicts of law thereof.
16.04. Successors and Assigns. This Agreement may not be
assigned by either party without the prior written consent of the other. The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns as permitted
herein.
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16.05. Execution in Counterparts. This Agreement may be
executed by the parties hereto in any number of counterparts, and by each of the
parties hereto in separate counterparts, each of which counterparts, when so
executed and delivered, shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
16.06. Currency. All payments and accounts shall be
made in United States Dollars, and all fractional amounts shall
be rounded to the nearest whole dollar.
16.07. Entire Agreement. This Agreement supersedes
all prior discussions and written and oral agreements and
constitutes the sole and entire agreement between the parties
with respect to the subject matter hereof.
16.08. Amendment or Waiver. No amendment or waiver of any
provision of this Agreement shall be effective unless set forth in writing,
signed by duly authorized officers of the parties hereto. A waiver shall
constitute a waiver only with respect to the particular circumstance for which
it is given and not a waiver of any future circumstance.
16.09. Interpretation. For purposes of this Agreement, the
words "hereof," "herein," "hereby," and other words of similar import refer to
this Agreement as a whole unless otherwise indicated. Whenever the words
"include," "includes," or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation." Whenever the singular
is used herein, the same shall include the plural, and
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whenever the plural is used herein, the same shall include the singular, where
appropriate.
16.10. Survival of Representations, Warranties and Agreements. The Reinsurer or
the Company, as the case may be, has the right to rely fully upon the
representations, warranties, covenants and agreements of the Company or the
Reinsurer, as the case may be, contained in this Agreement. All representations
and warranties made by the Company or the Reinsurer in this Agreement shall
survive the execution and delivery hereof. The provisions of Section 3.03,
Section 14.07 and Article XI shall survive the termination of this Agreement.
16.11. No Third-Party Beneficiaries. Nothing in this Agreement
is intended or shall be construed to give any person, other than the parties
hereto, their successors and permitted assigns, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision contained
herein.
16.12. Termination of Agreement.
(a) This Agreement may be terminated at any time prior to the
Closing Date: (i) by mutual consent of the Company and the Reinsurer or (ii) by
either the Company or the Reinsurer, if the Closing Date shall not have occurred
on or before October 31, 1996; provided, however, that the right to terminate
this Agreement under this Section 16.12 will not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing Date to occur on or before such date.
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(b) If this Agreement is terminated pursuant to Section
16.12(a), this Agreement shall become void and of no effect with no liability on
the part of any party hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written by their duly
authorized representatives.
FIDELITY AND GUARANTY LIFE
INSURANCE COMPANY
By
Name:
Title:
KEYPORT LIFE INSURANCE
COMPANY
By
Name:
Title:
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SCHEDULE A
REINSURED SPDAs
Single Premium Deferred Annuity, FGL SPDA (7-87) - Standard
Single Premium Deferred Annuity, FGL SPDA (7-93) - Arizona
Single Premium Deferred Annuity, FGL SPDA (7-92) - Idaho
Single Premium Deferred Annuity, FGL SPDA (10-88) - Massachusetts
& Montana
Single Premium Deferred Annuity, FGL SPDA IIR-2 (8-88) - Minnesota
Single Premium Deferred Annuity, FGL SPDA (4-95) - Oklahoma
Single Premium Deferred Annuity, FGL SPDA IIR-2 (8-87) - Texas
Single Premium Deferred Annuity, FGL SPDA-1 IIR-2 (8-87) - Texas
Single Premium Deferred Annuity, FGL SPDA-3 IIR-2 (8-87) - Texas
Single Premium Deferred Annuity, FGL SPDA-6 IIR-2 (8-87) - Texas
Endorsement, FGL SPDA-END 4 (5-93)
Interest Index Rider, FGL IIR-2% (2-87)
<PAGE>
SCHEDULE B
QUARTERLY PERIOD REINSURANCE REPORTS
1. Vantage Annuity Statutory Reserves
Plan
Issue Year
Policy Count
Account Value
Basic Surrender Value
Total Minimum Surrender Amount
Final Surrender Value
Basic Statutory Reserve
Reserve for Mortality Benefit
Total Statutory Reserve
2. Vantage Annuity Tax Reserves
Plan
Issue Year
Policy Count
Account Value
Surrender Value
Total Minimum Surrender Amount
Final Surrender Value
Basic Tax Reserve
Reserve for Mortality Benefit
Total Tax Reserve
3. F&G Deferred Annuity Reserve
Plan
Issue Year
Policy Count
Account Value
Basic Statutory Reserve
Reserve for Mortality Benefit
Total Statutory Reserve
Tax Reserve
Cash Surrender Value
4. F&G FASB 97 Report
Plan
Issue Year
Prior Year-end Account Value
Premiums
Premium Charges
Withdrawals
Withdrawal Charges
Interest
Adjustments if any
Quarter-end Account Value
<PAGE>
SCHEDULE C
ANNUAL REINSURANCE REPORTS
1. F&G Deferred Annuity Reserve Detail
Valuation Basis
Plan
Issue Year
Issue Month
Policy Number
Issue Date
Prior Year-end Account Value
Premiums
Premium Charges
Withdrawals
Withdrawal Charges
Interest
Adjustments if any
Current Year-end Account Value
Statutory Reserve
Reserve for Mortality Benefit
Total Statutory Reserve
<PAGE>
SCHEDULE D
POLICYHOLDER SERVICES TO BE PROVIDED
1. Maintain owner and insured records (computer, hard copy,
microfilm and image, as specified by the Company).
2. Record all owner and insured profile data changes.
3. Receive and respond to requests, complaints and inquiries
from owner, insured and other authorized persons per the
Company's procedures.
4. Keep daily reports reflecting system changes to owner and
insured data and maintain related correspondence.
5. Receive and process all disbursements requested with
confirmations to owner and agency in accordance with agreed
upon procedures.
6. Calculate and collect fees and taxes as applicable.
7. Receive and process owner requests for beneficiary,
ownership and address changes.
8. Receive and process requests for settlement/annuity options.
9. Prepare periodic and non-periodic disbursement payments by
check to owner or designated payee and deliver in accordance
with agreed upon procedures.
10. Withhold and report federal and state income tax as
required.
11. Record and acknowledge assignment of ownership and
collateral.
12. Produce and mail periodic statements of accounts to owners.
13. Prepare and mail tax forms to owners and other payees as
required by law, including tax implications of policy
assignments and ownership changes.
14. Process special mailings and/or mailing inserts as
reasonably required.
<PAGE>
SCHEDULE E
CONSERVATION AND COMMISSION PAYMENT SERVICES
TO BE PROVIDED AND ASSOCIATED FEES
Conservation:
1. Monthly valuation tapes provided to Paine Webber,
Prudential & Smith Barney for integration into
their account statements.
2. Quarterly list of upcoming renewals produced for
Smith Barney, A.G. Edwards, Prudential, Piper
Jaffray, Everen, Wheat First.
3. Customized individual broker list produced on
demand.
4. Endorsement offer letters produced and mailed to
individual policyholders at the end of the six
year surrender charge period.
5. Weekly reporting that tracks results of
conservation program by firm.
6. Monthly reporting that tracks results by
anniversary months.
7. Receive and respond to all requests and inquiries
from individual policyholders or brokers with
respect to the endorsement offer.
8. Process all policy endorsements and new issue
transactions that result from the endorsement
offer.
Commission Payments:
1. Weekly commission payments to member firms with
detail breakdowns by broker.
2. Maintenance of broker records.
(average changes 100 per week)
Fees:
Monthly fee of: $13,000 per month, subject to periodic review directed
at reflecting any decrease in endorsement activity and potential
modifications in procedures.
<PAGE>
SCHEDULE F
LIST OF AGENCY AND DISTRIBUTION AGREEMENTS
1. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Bateman Eichler, Hill
Richards, Inc. dated December 6, 1988
2. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Josephthal Agency Inc. dated
October 15, 1988
3. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Josephthal & Co. Insurance
Agency, Inc. dated October 15, 1988
4. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and A.G. Edwards & Sons, Inc. &
affiliated agencies dated December 6, 1988
5. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Illinois Company Investments,
Inc. dated November 28, 1988
6. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Blunt Ellis & Loewi dated
December 6, 1988
7. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Balanced Capital Services
dated December 6, 1988
8. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Butler, Wick & Co., Inc.
dated December 6, 1988
9. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Brazill Agency, Inc. dated
November 21, 1988
10. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Stifel, Nicolaus & Co., Inc.
dated December 6, 1988
11. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Wheat Insurance Services,
Inc. dated December 6, 1988
12. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Prudential Bache Securities,
Inc. dated December 6, 1988
F-1
<PAGE>
13. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and First of Michigan Insurance
Agency dated December 6, 1988
14. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Prescott, Ball and Turben
dated December 6, 1988
15. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Alex Brown Insurance Agency
Incorporated dated December 6, 1988
16. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Ferris, Baker Watts dated
December 6, 1988
17. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Carteret Savings Bank dated
November 17, 1988
18. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and R.G. Dickinson & Co. dated
December 6, 1988
19. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Piper Jaffray & Hopwood, Inc.
dated December 6, 1988
20. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Parker/Hunter, Inc. dated
December 6, 1988
21. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Legg Mason Financial
Services, Inc. dated December 6, 1988
22. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Gruntal Life Agency, Inc.
dated December 6, 1988
23. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Paine Webber dated June 1,
1989
24. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and John K. Benson dated
November 3, 1989
25. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Philip R. Johnnie dated
June 22, 1989
26. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Inland Securities Corp. dated
October 3, 1990
F-2
<PAGE>
27. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Dennis Weiss dated
February 6, 1989
28. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Norman Weiss dated February
6, 1989
29. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Interstate/Johnson Lane Corp.
dated January 10, 1989
30. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Fahnestock & Co., Inc. dated
March 27, 1989
31. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Atlantic Ind. Ins. Agency
dated June 1, 1989
32. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Argus Securities, Inc. dated
June 13, 1989
33. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Great Western Financial Sec.
Corp. dated November 21, 1989
34. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Smith Barney, Harris Upham &
Co. dated January 1, 1989 / July 7, 1987 - superseded
35. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and First Interstate Insurance
dated January 9, 1990
36. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Kidder Peabody Insurance -
subsidiaries dated May 31, 1990
37. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Kemper Securities Group dated
January 17, 1991
38. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Norwest Insurance Wisconsin
Corporation dated April 15, 1991
39. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Eileen Sercel dated May 25,
1989
40. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and J.C. Bradford & Co. dated
January 30, 1989
F-3
<PAGE>
41. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Alfred Sacks, Inc. dated
November 21, 1990
42. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and John J. Giannone dated
December 4, 1990
43. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Delaware Valley Brokerage
Serv., Inc. dated December 7, 1990
44. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Robert Chandler dated
November 16, 1990
45. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Bay Capital dated March 23,
1990
46. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Gregory P. Barnett dated
March 26, 1990
47. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Carl L. Kickham dated
December 4, 1990
48. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Premium Resource Inc. dated
October 3, 1990
49. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Planning Corp. of America
dated January 5, 1990
50. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Schneider Insurance dated
December 2, 1990
51. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and John N. Schneider dated
December 4, 1990
52. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Roney & Co. dated December 6,
1988
53. Agency and Distribution Agreement between Fidelity and
Guaranty Life Insurance Company and Shearson Lehman Hutton Inc.
dated January 1, 1989
All other Agency and Distribution Agreements issued on Form FGL 3668(10-88) to
agents or brokers registered under Section 15 of the Securities Exchange Act of
1934.
F-4
<PAGE>
SCHEDULE G
CONSENTS AND APPROVALS REQUIRED BY THE COMPANY
1. Premerger Notification Form to be filed with the United
States Department of Justice and the Federal Trade
Commission pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "Act"); provided, however,
-------- -------
that a Premerger Notification Form shall not be required to
be filed under this Agreement in the event that the Company
and the Reinsurer shall receive an opinion of Choate, Hall &
Stewart, in form and substance satisfactory to the Company,
to the effect that such filing is not required under the
Act.
2. Wisconsin Insurance Department under ss.618.32 of the
Wisconsin Insurance Laws.
<PAGE>
SCHEDULE H
CONSENTS AND APPROVALS REQUIRED BY THE REINSURER
1. Premerger Notification Form to be filed with the United
States Department of Justice and the Federal Trade
Commission pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "Act"); provided, however,
-------- -------
that a Premerger Notification Form shall not be required to
be filed under this Agreement in the event that the Company
and the Reinsurer shall receive an opinion of Choate, Hall &
Stewart, in form and substance satisfactory to the
Reinsurer, to the effect that such filing is not required
under the Act.
<PAGE>
SCHEDULE I
FORM OF OPINION OF SENIOR VICE PRESIDENT AND
GENERAL COUNSEL FOR THE REINSURER
[ ], 1996
Fidelity and Guaranty Life Insurance Company
100 East Pratt Street
Baltimore, Maryland 21201
Re: Coinsurance Agreement, dated as of [ ], 1996, by
and between Fidelity and Guaranty Life Insurance
Company and [ ]
Gentlemen:
We have acted as special counsel for [ ], a [ ] corporation
(the "Reinsurer"), in connection with the reinsurance by the Reinsurer, on a
100% coinsurance basis, of certain liabilities and obligations of Fidelity and
Guaranty Life Insurance Company (the "Company") pursuant to the Coinsurance
Agreement, dated as of [ ], 1996 (the "Agreement"), by and between the Company
and the Reinsurer. This letter is being delivered to you pursuant to Section
15.02(e) of the Agreement. Capitalized terms used herein without definition
shall have the respective meanings set forth in the Agreement.
[Scope of Procedures]
Based on the foregoing, and subject to the qualifications and
limitations stated herein, we are of the opinion that:
1. The Reinsurer is a life insurance company duly organized,
validly existing and in good standing under the laws of the State of Rhode
Island.
2. The Reinsurer has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
the operations of its business as they are now being conducted.
I-1
<PAGE>
3. The Reinsurer is duly licensed and admitted as an insurer
or accredited as a reinsurer under the laws of all States and jurisdictions of
the United States where failure of the Reinsurer to be so licensed and admitted
or accredited would cause the Company to be ineligible for reserve credit for
the reinsurance ceded under the Agreement, and is authorized under the laws and
regulations of said States and jurisdictions to reinsure the Reinsured SPDAs
under the Agreement.
4. The Reinsurer has all requisite corporate power
and authority to enter into the Agreement and to perform its
obligations thereunder.
5. The execution and delivery by the Reinsurer of the
Agreement, and the performance by the Reinsurer of its obligations under the
Agreement, have been duly authorized by all necessary corporate action. The
Agreement constitutes the valid and binding obligation of the Reinsurer,
enforceable against the Reinsurer in accordance with its terms.
6. The execution, delivery and performance of the Agreement,
and the consummation of the transactions contemplated thereby in accordance with
the respective terms and conditions thereof will not (a) violate any provision
of the Articles of Incorporation, Bylaws or other charter or organizational
document of the Reinsurer, or (b) violate any order, judgment, injunction, award
or decree of any court, arbitrator or governmental or regulatory body against,
or binding upon, or any agreement with, or condition imposed by, any
governmental or regulatory body, foreign or domestic, binding upon the
Reinsurer.
7. Except as described on Schedule H of the Agreement, no
consent, waiver, license, approval, order or authorization of, or registration,
filing or declaration with, or notices to, any person, entity or Governmental
Authority is required to be obtained, made or given by or with respect to the
Reinsurer in connection with (a) the execution and delivery of the Agreement by
the Reinsurer, or (b) the consummation by the Reinsurer of the transactions
contemplated thereby.
8. There are no actions, suits or claims or legal,
administrative, arbitration or governmental proceedings against or involving,
threatened against or involving the Reinsurer or the assets, properties or
businesses of the Reinsurer which questions the validity of the Agreement or any
action taken by the Reinsurer pursuant thereto or in connection with the
transactions contemplated thereby.
Our opinions set forth herein are subject to the following
assumptions and qualifications:
Very truly yours,
I-2
<PAGE>
SCHEDULE J
JOINT ELECTION UNDER IRC REGULATION 1.848-2(g)(8)
Fidelity and Guaranty Life Insurance Company ("F&G Life") and Keyport Life
Insurance Company (the "Reinsurer") (each a "party" and collectively the
"parties") are making a joint election under IRC Regulation 1.848-2(g)(8)
pertaining to the Coinsurance Agreement dated as July 24, 1996, by and between
F&G Life and the Reinsurer (the "Coinsurance Agreement"). Accordingly, F&G Life
and the Reinsurer agree that the party with net positive consideration for the
Coinsurance Agreement for each taxable year will capitalize specified policy
acquisition expenses with respect to the Coinsurance Agreement without regard to
the general deductions limitation of IRC Section 848(c)(1). The parties agree to
exchange information pertaining to the amount of net consideration under the
Coinsurance Agreement each year relating to both qualified and non-qualified
business.
This election is effective for the 1996 calendar tax year and subsequent tax
years the Coinsurance Agreement is in existence.
FIDELITY AND GUARANTY LIFE
INSURANCE COMPANY
By
Name:
Title:
KEYPORT LIFE INSURANCE COMPANY
By
Name:
Title:
<PAGE>
AMENDMENT NO. 1 TO COINSURANCE AGREEMENT
AMENDMENT NO. 1 TO COINSURANCE AGREEMENT, dated as of August
8, 1996 (this "Amendment No. 1"), by and between FIDELITY AND GUARANTY LIFE
INSURANCE COMPANY, a life insurance company organized under the laws of the
State of Maryland (the "Company"), and KEYPORT LIFE INSURANCE COMPANY, a life
insurance company organized under the laws of the State of Rhode Island (the
"Reinsurer").
WHEREAS, the Company and the Reinsurer have entered into the
Coinsurance Agreement, dated as of July 26, 1996 (the "Coinsurance Agreement");
and
WHEREAS, the Company and the Reinsurer desire to amend and
modify the Coinsurance Agreement as set forth herein.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Reinsurer hereby agree that the Coinsurance Agreement shall be, and hereby is,
amended and modified as follows:
1. The definition of "Blended Rate" in ARTICLE I is
hereby amended and replaced in its entirety to read as follows:
"Blended Rate" means the percentage rate equal to the sum of
(i) two-thirds of the one year Treasury Note rate as of 3 p.m.
on the Business Day which is two days prior to the Closing
Date plus (ii) one-third of the three year Treasury Note rate
as of 3 p.m. on the Business Day which is two days prior to
the Closing Date.
2. This Amendment No. 1 shall be effective when
executed and delivered by the parties hereto.
3. Except as amended and modified by this Amendment
No. 1, all other terms of the Coinsurance Agreement shall remain
unchanged.
4. This Amendment No. 1 may be executed in two or more
counterparts, each of which shall be deemed to be an original,
but all of which shall constitute one and the same instrument.
5. This Amendment No. 1 shall be governed by the laws
of the State of Maryland, without giving effect to principles of
conflicts of law thereof.
<PAGE>
IN WITNESS WHEREOF, each of the Company and the Reinsurer has
caused this Amendment No. 1 to be executed on its behalf by its officers
thereunto duly authorized, all as of the day and year first above written.
FIDELITY AND GUARANTY LIFE
INSURANCE COMPANY
By ____________________________
Name:
Title:
KEYPORT LIFE INSURANCE COMPANY
By ____________________________
Name:
Title:
<PAGE>
AMENDMENT NO. 2 TO COINSURANCE AGREEMENT
AMENDMENT NO. 2 TO COINSURANCE AGREEMENT, dated as of November 15,
1996 (this "Amendment No. 2"), by and between FIDELITY AND GUARANTY LIFE
INSURANCE COMPANY, a life insurance company organized under the laws of the
State of Maryland (the "Company"), and KEYPORT LIFE INSURANCE COMPANY, a life
insurance company organized under the laws of the State of Rhode Island (the
"Reinsurer").
WHEREAS, the Company and the Reinsurer have entered into the
Coinsurance Agreement, dated as of July 26, 1996, as amended by Amendment No. 1,
dated as of August 8, 1996 (as so amended, the "Coinsurance Agreement"); and
WHEREAS, the Company and the Reinsurer desire to amend and modify the
Coinsurance Agreement as set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Reinsurer
hereby agree that the Coinsurance Agreement shall be, and hereby is, amended and
modified as follows:
1. The following definition of "Internal Replacement" is hereby
added in ARTICLE I:
"Internal Replacement" means any instance in which a Reinsured
SPDA is surrendered and another annuity contract that is
written by the company is issued to the owner of the Reinsured
SPDA as part of a direct exchange.
2. The definition of "Reinsured SPDA" in ARTICLE I is hereby
amended and replaced in its entirety to read as follows:
"Reinsured SPDAs" means (I) the SPDAs, including any
Endorsements thereto and (ii) any single premium deferred
annuity contracts replacing SPDAs and any endorsements to
SPDAs issued by the Company on or subsequent to the Effective
Date with the consent of the Reinsurer. Reinsured SPDAs shall
not include (i) Retained Asset Account Funds in existence on
the Effective Date and (ii) Internal Replacements issued in
accordance with the terms of Section 9.09 of this Agreement.
3. Section 7.01(a) is hereby amended and replaced in its entirety
to read as follows:
(a) The Reinsurer shall reimburse the Company, in
accordance with Sections 7.01(b) and 8.01(b), for an amount equal to:
(i) 100.14% of the sum of all (A) death benefits, (B)
surrender or (C) withdrawal payments and periodic payments
under annuity settlement options elected by the owner, and
paid by the Company, with respect to Reinsured SPDAs that
become due on or after the Effective Date; and
(ii) 99% of the Surrender Value as of the date of
exchange with respect to Reinsured SPDAs that are surrendered
as an Internal Replacement on or after the Effective Date
(such Account Values, together with the death benefits and
other payments referred to in the foregone clause (i)(A),
(i)(B) and (i)(C) above, are referred to collectively as
"Benefits").
Page 1 of 2
<PAGE>
The reimbursement for Benefits shall be net of surrender
charges pursuant to the terms of the relevant Reinsured SPDAs.
4. ARTICLE IX is hereby retitled, "DURATION, RECAPTURE,
TERMINATION AND INTERNAL REPLACEMENTS."
5. Section 9.09 is hereby added in ARTICLE IX to read as follows:
"Section 9.09. Internal Replacements. The Company shall
request, on five (5) Business Days' written notice to the
Reinsurer, the right to issue an Internal Replacement upon
exchange of Reinsured SPDAs. Any Reinsured SPDA that is
surrendered or exchanged in connection with an Internal
Replacement shall be treated as surrendered and the Reinsurer
shall pay to the Company, in accordance with Sections
7.01(a)(ii) and 8.01(b), an amount equal to 99% of the
Surrender Value as of the date of such exchange in respect of
such Reinsured SPDA. The other annuity or insurance contract
to which a Reinsured SPDA is converted or for which it is
exchanged as an Internal Replacement, shall not be a Reinsured
SPDA under this Agreement."
6. This Amendment No. 2 shall be effective when executed and
delivered by the parties hereto.
7. Except as amended and modified by this Amendment No. 2,
all other terms of the Coinsurance Agreement shall remain unchanged.
8. This Amendment No. 2 may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same instrument.
9. This Amendment No. 2 shall be governed by the laws of the
State of Maryland, without giving effect to principles of conflicts of law
thereof.
IN WITNESS WHEREOF, each of the Company and the Reinsurer has caused
this Amendment No. 2 to be executed on its behalf by it officers thereunto duly
authorized, all as of the day and year first above written.
FIDELITY AND GUARANTY
LIFE INSURANCE COMPANY
By: ___________________________________
Michel Perreault
Vice President, Chief Actuary
KEYPORT LIFE INSURANCE COMPANY
By: ___________________________________
Paul LeFevre
Senior Vice President and
Chief Financial Officer
Page 2 of 2
USF&G CORPORATION
1996 ANNUAL REPORT
a strategically balanced approach to maximizing shareholder value
[APPENDIX TO ELECTRONIC FORMAT DOCUMENT]
(List of graphic and image material in 1995 Annual Report to Shareholders)
Inside Front Cover
"This is the dawn of USF&G's second century. Our company has been transformed
into a highly competitive enterprise comprised of discretely organized strategic
businesses led by exceptionally strong managerial and creative talent. We have
created substantial new sources of earnings through innovative product/market
and business development initiatives. We have fostered a unique high-performance
culture of people who are committed to making a difference and practicing sound
core values."
--Norman P. Blake, Jr.
USF&G Chairman, President,
and Chief Executive Officer
USF&G CORPORATION, with assets of $14.4 billion, is a holding company for
property/casualty and life insurance operations. The corporation is comprised of
the following portfolio of strategic businesses: the Commercial Insurance Group,
the Family and Business Insurance Group, Specialty Businesses, and F&G Life.
Together, these units provide a wide variety of commercial and personal
property/casualty insurance, surety bonds, reinsurance, life insurance, and
annuity products to meet the varied risk management needs of its customers.
USF&G operates on five core values: customer first, integrity, professionalism,
innovation, and teamwork.
CONTENTS
1 Financial Highlights
2 Chairman's Letter
8 Business Overview
12 Capital Management
13 Index to Financial Information
59 Directors and Committees of the Board
60 Executive Management Committee
61 Office Locations
62 Officers
64 Shareholders' Information
Page 1
GRAPH Strong Earnings Growth and Improved Returns
(in millions)
Total Revenues Operating Income*
1992 $3,712 $(60)
1993 3,323 100
1994 3,310 135
1995 3,459 181
1996 3,498 189
(footnote) *Operating income(loss) is defined as income from operations before
realized gains, branch reorginization severance, facilities exit costs/
sublease income, certain income tax benefits, and cumulative effect of
accounting changes. The information presented in this manner is not intended
to conform with GAAP.
GRAPH Continued Improvement in Property/Casualty Underwriting Performance
USF&G Industry USF&G Industry
Combined Combined Loss Loss
Ratio** Ratio** Ratio Ratio
1992 116.9 115.8 81.8 88.1
1993 109.1 106.9 75.3 79.5
1994 108.2 108.5 73.1 81.1
1995 106.1 107.2 72.4 78.9
1996 105.9 107.0 72.1 79.8
(footnote) **Includes policyholders' dividends; 1996 industry ratios are
estimates provided by A.M. Best.
Page 2 PHOTO(caption)
Chairman, President, and Chief Executive Office
Norman P. Blake, Jr.
Page 3
Business Transformation
GRAPH Sources of 1996 Premium
New products/markets since 1993 40%
Previously existing business 60
GRAPH 1996 Return on Equity
New products/markets since 1993 14%
Previously existing business 7
Page 4
PICTURE Strategically Balanced Business Portfolio
Cost Differentiation
(distribution/process driven)
Family and Business Insurance Group
F&G Life cost leader
(scale)
value leader
Commercial Insurance Group (skill)
Specialty Businesses:
Discover Re
F&G Re
Surety
Value Differentiation
(underwriting/product driven)
(footnote) Note: The higher a business is positioned on the vertical axis, the
more it must achieve relative cost advantage to be successful. The further to
the right a business is positioned on the horizontal axis, the more the business
must achieve relative value advantage to be successful.
Page 6 (highlighted text in margin)
I anticipate that USF&G will again outperform the industry by producting
another year of improving underwriting performance despite a very challenging
business environment.
Page 8
PHOTO
PHOTO
PHOTO
PHOTO
Page 9
PHOTO
PHOTO
Page 10
PHOTO
PHOTO
PHOTO
PHOTO
PHOTO
Page 12
GRAPH
Total Debt- Debt-plus-Preferred
Shareholders' to- Equity-to-
Equity* Equity* Total-Capitalization*
1992 $1,300 51% 59%
1993 1,363 48 60
1994 1,592 40 46
1995 1,716 35 36
1996 1,969 24 31
(footnote) *Before effect of SFAS No. 115.
Note: All ratios include the capital securities as preferred equity
Page 60
PHOTO (caption)
Glenn W. Anderson
President - Commercial Insurance Group
PHOTO (caption)
John R. Berger
President - F&G Re
PHOTO (caption)
Kenneth E. Cihiy
Executive Vice President - Claim
PHOTO (caption)
Gary C. Dunton
President - Family and Business Insurance Group
PHOTO (caption)
Dan L. Hale
Executive Vice President - Chief Financial Officer
PHOTO (caption)
Robert J. Lamendola
President - Surety Group
PHOTO (caption)
Thomas K. Lewis, Jr.
Executive Vice President - Chief Information Officer
PHOTO (caption)
Stephen W. Lilienthal
Executive Vice President - Field Development and Operations
PHOTO (caption)
John A. MacColl
Executive Vice President - General Counsel and Human Resources
PHOTO (caption)
Andrew A. Stern
Executive Vice President - Strategic Planning and Reinsurance Operations
PHOTO (caption)
Harry N. Stout
President - F&G Life
PHOTO (caption)
John C. Sweeney
Chairman - Falcon Asset Management
[END OF APPENDIX TO ELECTRONIC FORMAT DOCUMENT]
<PAGE>
USF&G CORPORATION Financial Highlights
Years Ended December 31
(dollars in millions except per share data) 1996 1995 1994
--------------------------------------
Consolidated Results
Revenues $ 3,498 $ 3,459 $ 3,310
Premiums earned 2,731 2,666 2,508
Net investment income 705 733 749
Net realized gains on investments 44 7 5
Facilities exit (costs)/sublease income 42 6 (183)
Income tax benefit, net 2 14 280
Net income 261 209 237
--------------------------------------
Results Per Common Share
Net income $ 2.05 $ 1.63 $ 2.00
--------------------------------------
Dividends declared $ .20 $ .20 $ .20
--------------------------------------
At December 31
1996 1995 1994
--------------------------------------
Consolidated Financial Position
Assets $14,407 $14,651 $13,980
Total debt 482 607 628
Shareholders' equity 1,969 1,984 1,441
Debt-to-(capital securities-plus-equity) 23% 31% 44%
--------------------------------------
Book value per share $ 15.48 $ 14.68 $ 9.96
Closing market price per share 20 7/8 16 7/8 13 5/8
Common shares outstanding 114,240,489 119,606,095 104,810,794
--------------------------------------
[GRAPH - SEE APPENDIX TO ELECTRONIC FORMAT DOCUMENT]
<PAGE>
[GRAPH - SEE APPENDIX TO ELECTRONIC FORMAT DOCUMENT]
A Letter to our Shareholders
This past year represents the culmination of a six-year transformation of our
company into a highly competitive enterprise capable of achieving a leadership
position in our served markets and generating a higher quality and more
substantial source of earnings. This evolution of our company is in contrast
with a turnaround situation in which earnings improvements tend to be more
narrow and short lived and are generally achieved through dramatic cost
reductions, elimination of unprofitable lines of business, and capital
restructuring without any fundamental enhancement in the scope and source of
earnings. We have strategically repositioned each of our major businesses,
established new channels of distribution, expanded both product and market
scope, created major new sources of earnings through aggressive business
development, greatly enhanced our talent and technology base, and established a
unique high-performance culture committed to the practice of sound core values.
Strategic Positioning of Business Portfolio
The significance of the transformation of our company can best be appreciated by
understanding the sources of premium growth. As demonstrated by the accompanying
exhibit, approximately 40 percent of 1996 consolidated premium was realized from
new products, markets, and businesses developed since 1993. More importantly,
profitability as measured by return on equity (ROE), was generated primarily by
these new sources of earnings. This shift in business mix has been a major
factor in achieving increased earnings growth and improved returns.
This transformation is further manifested in the strategic positioning of our
business portfolio: the Family and Business Insurance Group, the Commercial
Insurance Group, Specialty Businesses, and F&G Life. The composition of our
business portfolio represents a strategically balanced assembly of individual
businesses. Each business is in its own stage of development in pursuing its
strategic mandate of achieving either a cost or value leadership position.
Depicted in the graph on page 4 is the positioning of each business in terms of
its competitive cost and value differentiation. Importantly, each of these
businesses possesses its own earnings characteristics consistent with its
risk/reward profile. In composite, these businesses represent complementary
sources of earnings capable of generating an increasingly higher quality and
more stable source of earnings.
[GRAPH - SEE APPENDIX TO ELECTRONIC FORMAT DOCUMENT]
[GRAPH - SEE APPENDIX TO ELECTRONIC FORMAT DOCUMENT]
Family and Business Insurance Group: FBIG was formed in 1995 by combining
personal lines and small business insurance to take advantage of market and
operating synergies. In 1996, Gary Dunton and his management team implemented an
aggressive restructuring plan to improve operating efficiencies and gain
economies of scale. Three regional Centers for Agency Services were established
to benefit from a comprehensive re-engineering of business processes and to
fully utilize new sophisticated systems capabilities. In addition, much effort
was given to upgrading the talent base through training and recruiting programs.
Concurrently, FBIG established its own dedicated field sales force, segmenting
its agency plant, and becoming more selective in agency appointments. This
reorganization brings greater focus to penetrate fewer, but more strategically
valuable agents.
Another important strategic initiative has been new product development. In an
effort to improve profit performance, FBIG is driving its business mix more
toward small business insurance. To accomplish this, a competitively superior
small business product line has been developed and is in the process of field
implementation. In addition, new interface capability via the Internet is being
developed with our agents, allowing for real time, on-line underwriting and
policy processing. By the end of 1997, many of these new product and system
enhancements will have been implemented, providing a source of growth and
improved profitability.
[PICTURE - SEE APPENDIX TO ELECTRONIC FORMAT DOCUMENT]
Customers tell us that one of USF&G's greatest strengths is its outstanding
claim service. In 1996, we became even better. We established a centralized
claim reception and processing center in Tampa. Significant improvements in
service quality and cost effectiveness have been achieved and 24-hour,
seven-days-a-week claim handling is now available for all routine claims.
Turnaround time has also been dramatically improved. The establishment of this
new facility has allowed us the opportunity to upgrade talent, build a
high-performance service culture, and deliver greater value to our customers.
Commercial Insurance Group: CIG was established as a separate unit in 1996. This
reorganization entailed converting a shared branch network into a dedicated
field structure for CIG. In addition, CIG is redefining its agent and broker
relationships on a more selective basis. As a result, CIG has a much greater
capability to grow its book of business by more effectively penetrating its
served markets.
Since 1993, Glenn Anderson and his management team have been successful in
driving CIG's business mix towards higher margin specialty segments and excess &
surplus lines business. Separate specialty market segment programs and business
platforms have been established. Each business activity is being championed by a
specialist business leader and his/her team. Their collaborative success speaks
for itself. These specialty business activities have approximately doubled since
1993 to 42 percent of CIG's 1996 total direct written premium. CIG's specialty
segments and excess & surplus lines grew direct written premium 22 percent this
year. Together, these businesses are very profitable and are achieving a
combined ratio of less than 100 percent. Within CIG, these specialty platforms
include excess & surplus property and casualty lines, financial institutions,
technology, governmental entities, large real estate, directors & officers, and
transportation. CIG has also developed a segmented approach to the remainder of
its business, within competitive capabilities in the contractors, manufacturers
and inland marine markets. Additionally, CIG has further expanded its
international product/market scope for its domestic customers. Several joint
ventures were completed providing international property/casualty and ocean
marine cargo capabilities.
Specialty Businesses: USF&G has three discrete, stand-alone specialty
businesses: Discover Re, F&G Re, and the Surety Group. Their success is
determined by their ability to deliver competitively superior value and is
directly linked to the quality of the underwriting skill base of each
organization. Characteristically, these businesses possess a higher risk/reward
profile and require significant expertise and highly focused and well
disciplined marketing strategies. USF&G's specialty businesses have performed
well against this yardstick, with each business generating a combined ratio
below 100 percent. In addition, they produced a composite ROE of greater than 30
percent in 1996.
Discover Re: USF&G acquired Discover Re in 1995 to gain entry into the
fast-growing alternative risk transfer market. The growth of this market comes
from the displacement of the conventional commercial risk transfer market as the
demand for self-insurance programs continues to grow. Geo Estes and Scott Doyle
founded Discover Re in 1990, and since then the company has grown rapidly as it
increased its product and market scope. Presently, Discover Re is targeting the
"captive" self-insurance market as a major opportunity to complement its core
business of reinsuring individual self insureds and pools. The earnings
characteristics of this business are particularly attractive because they
generate income from both risk-bearing and fee-income activities. Fee income was
$12 million for 1996, representing a 76 percent increase over 1995.
F&G Re: Under the leadership of Paul Ingrey, F&G Re was established as a DE NOVO
start-up in 1983. Since then, F&G Re has consistently outperformed the industry
on a combined ratio basis, with an inception-to-date combined ratio of 94
percent. F&G Re has always focused on traditional property/casualty reinsurance
and financial (finite risk) reinsurance. Prior to 1993, nearly all of F&G Re`s
business was domiciled in the United States. In 1993 and subsequent years, the
international component of their activities has grown to be almost 50 percent of
the written premium. In 1996 under John Berger's leadership, several new
initiatives expanded F&G Re's reach even further: (1) the development of a DE
NOVO venture into facultative reinsurance; (2) the establishment of a Hong Kong
office to improve access into Asian markets; and (3) the acquisition of Ashley
Palmer, a well-recognized managing agency at Lloyd's of London, to gain greater
access into that market. F&G Re is well positioned to take advantage of global
market opportunities and to extend its product capabilities to generate
additional sources of high- margin revenues.
Surety Group: Surety is one of USF&G's original lines of business and has
consistently represented an attractive source of earnings and high returns.
Historically, USF&G had been one of the surety industry's leaders, but in the
late 1980s, its market share declined. In 1992, Bob Lamendola joined USF&G and
under his leadership, our Surety Group has regained its prominent industry
position. In 1994, we entered the international market with the establishment of
a Canadian subsidiary and the development of "reverse flow" capability to serve
the needs of nonU.S. concerns doing business in the United States. In December
1996, the Surety Group further enhanced its international reach with the
acquisition of Afianzadora Insurgentes, Mexico's largest surety. This
acquisition allows us to take advantage of cross-border commerce generated by
NAFTA as well as related infrastructural development in Mexico. Our Surety Group
is well positioned to sustain its prominent industry position as well as to
capitalize on the international growth prospects in the years ahead.
F&G Life: Since 1993, F&G Life has undergone a dramatic transformation. The
quality of the balance sheet and investment portfolio has significantly
improved. Employment has been lowered by 48 percent and the operating
expense/revenue ratio declined from 7.9 percent to 4.3 percent. Under the
leadership of Harry Stout and his management team, new business has grown an
average of 29 percent per year since 1993. Approximately 94 percent of new
business growth is attributable to new products, markets, and channels of
distribution developed since 1993. Pretax operating income has grown an average
of 84 percent per year over the last two years. In early 1996, F&G Life
outsourced its systems and administrative processes to achieve significant cost
efficiencies. Because of its competitive cost position, F&G Life represents an
attractive source of earnings growth at increasing rates of return. It has
become an extremely efficient developer and marketer of specialty life insurance
and annuity products.
Summary of Financial and Market Performance
USF&G's 1996 consolidated financial results reflect the improving overall
performance of our operating units, in spite of unusually large catastrophe
losses. Operating income* increased 4 percent even though catastrophe losses
exceeded recent annual averages by $40 million. Net income was $261 million, up
25 percent (reflecting capital gains realized from asset sales and adjustment of
facilities exit costs for sublease income). Return on equity was 10.5 percent on
an operating income basis,** slightly lower than 10.9 percent in 1995. Earnings
per share increased 26 percent and 5 percent on a net income and operating
income basis, respectively.
*Operating income is defined as net income excluding realized gains and
losses on investments, branch reorganization severance, facilities
exit costs/sublease income, and certain income tax benefits.
** Excluding the effects of SFAS No. 115.
Our property/casualty segment outperformed the industry in 1996 underwriting
results with a combined ratio of 105.9 percent (including 0.3 points for
policyholder dividends), compared with A.M. Best's estimated industry average of
107. This performance represents a modest 0.2 point improvement over 1995. This
underwriting result is very impressive, however, when considering that we
incurred $108 million in net catastrophe losses in 1996, the second highest
level in the history of the company. F&G Life had another strong year with a
23-percent increase in new business sales, a 60-basis point increase in
investment spread, and a 69-percent increase in after-tax operating income.
The quality of our consolidated balance sheet continued to improve as a result
of continued capital restructuring initiatives and growth in retained earnings.
Liquidity, as measured by fixed charge coverage, improved significantly from 2.8
times in 1995 to 4.1 times in 1996. Financial leverage continued to improve,
with the debt-to-equity ratio* dropping 11 points to 24 percent. This
considerable strengthening of our balance sheet and increase in earnings
resulted in our ratings being upgraded by A.M. Best, Standard & Poor's, and Duff
& Phelps. From the standpoint of shareholder value creation, book value
increased 21 percent to $15.03 per share,* and market capitalization increased
18 percent from $2.0 billion at year-end 1995 to $2.4 billion at year-end 1996.
*Excluding the effects of SFAS No. 115.
Conclusion
Significant strategic initiatives completed in 1996 represented the culmination
of a highly successful transformation process. At the dawn of our second
century, we possess the organizational focus and determination to achieve
leadership in our served markets. I believe with the completion of the
realignment of our businesses, we have greatly enhanced our ability to execute a
strategically balanced approach to creating and maximizing shareholder value.
Looking into 1997, I anticipate that USF&G will again outperform the industry by
producing another year of improving underwriting performance despite a very
challenging business environment.
On behalf of my fellow USF&G employees, I wish to express our sincere
appreciation for the confidence you have placed in our ability to build a
company worthy of your investment. You can be assured we will continue to strive
to achieve our business objectives, persevere in maintaining the quality of our
values and culture, and deliver growth in earnings and improved returns.
/s/NORMAN P. BLAKE, JR.
Norman P. Blake, Jr.
Chairman, President, and Chief Executive Officer
February 28, 1997
<PAGE>
A Leader in Insurance Concepts
In an industry crowded with generalists, USF&G is shifting focus to being a
specialist provider of insurance products and services. The company's mission--
to be a leader in each of the markets it serves--has guided its evolution into a
portfolio of strategic businesses: the Commercial Insurance Group, the Family
and Business Insurance Group, Specialty Businesses, and F&G Life.
Each pursues different markets with a clearly defined strategy, operating
structure, and concentrated product focus, and is managed on a portfolio basis
by teams of experts cognizant of the critical success factors required in their
marketplace. Together as USF&G Corporation, the businesses maximize shareholder
value by balancing each other's unique challenges, thereby reducing aggregate
corporate risk. Each also shares the 100-year legacy of USF&G, a corporate name
recognized throughout the industry as a leader in innovative, market-specific
insurance solutions.
"Stop to watch what you have built and the structure begins to deteriorate,"
wrote John R. Bland, the founder of USF&G. Bland believed the mark of a company
is the accumulation of quality. In 1996, its centennial year, USF&G has
assembled the best talent and ideas in each of its businesses to provide the
highest quality products and services required by its broad range of customers.
COMMERCIAL INSURANCE GROUP: CIG is focused on serving the insurance needs of a
highly diversified set of customer segments. Target segments include financial,
governmental, and educational institutions; technology, manufacturing and
construction industries; and real estate, transportation, and other specific
service industries.
CIG's competitive advantage is the ability of its focused underwriting, loss
control, and claims teams to deliver customized products and services to target
clients. CIG's product offering is expansive, including highly specialized
excess & surplus lines, directors & officers, professional liability, inland and
ocean marine, and international coverages.
CIG markets its capabilities through a dedicated field network of 34 offices in
five geographic regions. Each region is responsible for implementing specific
plans based on its own market development strategies. These market penetration
plans are established in collaboration with a focused partnership network of
independent agents and brokers serving the retail, wholesale and surplus lines
channels.
As it advances its mission of specialization, CIG continues to expand its
high-profit margin businesses and value-added risk management capabilities.
FAMILY AND BUSINESS INSURANCE GROUP: FBIG has three broad product areas:
comprehensive small business insurance packages, standard personal insurance,
and nonstandard automobile insurance (provided by Victoria Financial).
Its strategy is to become a leading insurer of small commercial businesses, the
fastest growing part of the American economy. FBIG introduced a new array of
small commercial products in 1996--the Business Foundation Series. It targets
more business classes, has more than 30 built-in endorsements, and is supported
by newly developed state-of-the-art underwriting and processing systems.
FBIG's distribution strategy relies on a unique partnership with a select group
of agents who consider USF&G to be critical to their success and share its core
business values. The new Centers for Agency Services (located in Atlanta,
Baltimore and Denver) offer more focused underwriting and marketing support to
agents. A new national claim reception center in Tampa, offers faster handling
of claims, 24 hours a day, seven days a week.
FBIG also seeks stable and profitable personal lines business including
homeowners, automobile, personal excess and watercraft insurance.
DISCOVER RE provides insurance, reinsurance and related services for the
alternative risk transfer market, a broad category comprising self-insured
companies and pools, captive insurers, and risk retention groups.
Innovation is the hallmark of Discover Re. It views its customers as joint
venture partners, with participants retaining a share in the risk being
transferred. The company also provides unbundled insurance services. Both
strategies help customers to reduce their cost of risk transfer.
F&G RE reinsures property/casualty insurance companies worldwide. It is a "light
cruiser" amid the lumbering battleships of the reinsurance industry. With a
staff of only 64 employees, F&G Re takes a broad opportunistic approach that has
produced an average combined ratio of 94 percent since its inception in 1983.
THE SURETY GROUP is USF&G's oldest business, dating to the company's founding in
1896. It is also one of the largest surety companies in the world.
The Surety Group is expanding both its international and U.S.-based business,
particularly on the West Coast. The company operates in Canada via Northern
Indemnity and in Mexico through the 1996 acquisition of Afianzadora Insurgentes,
the largest surety company in Mexico.
F&G LIFE
F&G Life provides a complete line of life insurance and fixed annuity products
to specialty distributors around the country. Founded in 1959, F&G Life is an
opportunistic, entrepreneurial company that is taking a return-oriented approach
to growth.The company has one of the lowest operating cost structures in the
life insurance industry. Sales on average are growing at 22 percent a year,
while operating earnings have increased 60 percent on an average after-tax basis
over the last three years.
Like other USF&G business units, F&G Life develops and markets products that
meet specific market needs. For example, a program targeting school teachers for
tax-sheltered annuities produced more than 40,000 policies in 1996, helping to
make F&G Life the sixth largest writer of qualified payroll-deduction annuities
in the industry. The company's annuity product portfolio also includes a
thriving structured settlement business.
On the life insurance side, the company is targeting the largely untapped
middle-income senior market with a variety of term and universal life insurance
products geared toward lifestyle maintenance. In 1997, the company plans to
continue to develop other novel life insurance strategies to meet specific
market needs.
USF&G Business Overview
In 1996, USF&G completed its evolution into a portfolio of strategic businesses
with separate management, resources, target markets and distribution channels.
They provide the strategic balance to produce a higher quality of earnings.
Property/Casualty Operations (88% of revenues)
Commercial Insurance Group
37% of P/C Operations*
Broad range of commercial coverages and complete insurance packages
for targeted commercial market segments
Excess & surplus lines placements for unique risks
Family and Business Insurance Group
37% of P/C Operations*
Comprehensive commercial insurance packages for small businesses
Auto, homeowners, personal excess, and watercraft insurance for individuals
Specialty Businesses
26% of P/C Operations*
Discover Re
Tailored alternative risk transfer programs for commercial enterprises
and groups
F&G Re
Property and casualty reinsurance for worldwide risks
Surety Group
Bonds for the broad construction industry and the commercial surety
market
Life Insurance Operations (12% of revenues)
F&G Life
Fixed annuities for structured settlements of claims, tax-sheltered
annuities for teachers, and other annuities for specific market segments
Life insurance for target markets
*based on 1996 net written premium
<PAGE>
USF&G CORPORATION Capital Management
The recapitalization of USF&G has progressed in conjunction with the company's
overall rebuilding strategy of "Fix the Foundation - Build with Vision -
Leverage Leadership." During late 1996, USF&G entered the final phase of its
capital restructuring program.
Fix the Foundation (1991 - 1993)
With USF&G's business concentration refocused on insurance, it was apparent that
our balance sheet was in need of strengthening. To address this need, we issued
$320 million of high-coupon preferred stock in 1991. This was in addition to
$200 million of preferred stock which had been issued in 1986.
Build with Vision (1994 - 1996)
While the preferred equity infusion addressed the immediate concern of capital
adequacy, it created another problem by increasing the company's cost of capital
by $32 million in additional annual dividend obligations. As the company's
operating performance improved, we were able to convert the $320 million of
preferred stock issued in 1991 into common stock by the end of 1996, thereby
reducing annual dividend requirements by $27 million.
During this period, USF&G also dramatically improved its liquidity by
refinancing approximately $505 million in short-term debt. In 1994 and 1995, we
issued $125 million in zero coupon convertible notes which do not require cash
interest payments, and $380 million of long-term debt.
As a result of all these actions, annual dividend requirements have decreased,
cash flow has increased, and financial leverage has improved dramatically.
Leverage Leadership (1996 - Forward)
Going forward, USF&G will continue to actively manage its capital to ensure that
shareholder value is maximized while maintaining the flexibility for future
growth. This was evidenced by the company's decision in 1996 to begin returning
excess capital to shareholders through the repurchase of up to 13.3 million
common shares and common stock equivalents, of which 8.6 million had been
repurchased as of year end. Also, in December 1996 and January 1997, we issued a
total of $200 million in capital securities to fund the redemption of the
remaining preferred stock, 50 percent of which was called and redeemed for cash
in January 1997.
Capital Base
At December 31
(in millions) 1996 1995 1994
---------------------------
Debt:
Current/short-term $ -- $ 80 $ 227
Long-term 482 527 401
---------------------------
Total debt 482 607 628
---------------------------
Capital securities* 100 -- --
---------------------------
Shareholders' equity:
Preferred equity 200 227 396
Common equity 1,769 1,757 1,045
---------------------------
Total shareholders' equity 1,969 1,984 1,441
---------------------------
Total capitalization $2,551 $2,591 $2,069
---------------------------
* USF&G-obligated capital securities of a subsidiary trust.
Improvements in Leverage
Debt-to-equity 23% 31% 44%
Debt-to-equity before SFAS No. 115 24 35 40
(Debt-plus-preferred equity)-to-total
capitalization 31 32 49
(Debt-plus-preferred equity)-to-total
capitalization before SFAS No. 115 31 36 46
---------------------------
[GRAPH - SEE APPENDIX TO ELECTRONIC FORMAT DOCUMENT]
<PAGE>
USF&G CORPORATION Management's Responsibility for Financial Reporting
Financial Statements
Management is responsible for the preparation and integrity of the financial
statements and other information presented in this annual report. The financial
statements are prepared in conformity with generally accepted accounting
principles, and, therefore, include amounts based on judgments and estimates
made by management.
Internal Controls
Management is also responsible for the system of internal control. The system of
internal control encompasses the organizational structure, selection and
training of personnel, communication and enforcement of policies, procedures and
the code of conduct, and an ongoing internal audit program. The internal
controls are designed to provide reasonable assurance that financial records are
reliable for preparing financial statements, that transactions are completed as
authorized, and that assets are safeguarded. There are limitations inherent in
any system of internal control, however, including the possibility of human
error and the circumvention or overriding of controls. Accordingly, even an
effective system of internal control can provide only reasonable, not absolute,
assurance as to the reliability of the financial records. Management and USF&G's
internal auditors regularly review these controls and assess their adequacy and
effectiveness.
Audit Committee
The Board of Directors maintains an audit committee of directors who are not
employees of USF&G. The Audit Committee meets regularly with management,
internal auditors and independent auditors to review internal control and
financial reporting matters. Both the internal and independent auditors have
full and free access to the Audit Committee.
Independent Auditors
USF&G engages Ernst & Young LLP to conduct independent audits of the financial
statements in accordance with generally accepted auditing standards. Their
audits include reviews and tests of internal controls, transactions and other
information they consider necessary to express an opinion on the financial
statements.
/s/NORMAN P. BLAKE, JR. /s/DAN L. HALE
Norman P. Blake, Jr. Dan L. Hale
Chairman, President, and Executive Vice President and
Chief Executive Officer Chief Financial Officer
February 21, 1997
Index to Financial Information
Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Eleven-Year Summary of Selected Financial Data 32
Consolidated Statement of Operations 34
Consolidated Statement of Financial Position 35
Consolidated Statement of Cash Flows 36
Consolidated Statement of Shareholders' Equity 37
Notes to Consolidated Financial Statements 38
Report of Independent Auditors 58
<PAGE>
USF&G Corporation Management's Discussion and Analysis of Financial Condition
and Results of Operations
This discussion provides management's assessment of financial results and
material changes in financial position for USF&G Corporation (consolidated,
"USF&G" or "the Corporation"), its two primary business segments -
property/casualty insurance and life insurance - and its investment portfolio.
Property/casualty insurance is written primarily by United States Fidelity and
Guaranty Company ("USF&G Company"); life insurance and annuities are written
primarily by Fidelity and Guaranty Life Insurance Company ("F&G Life").
In connection with, and because it desires to take advantage of, the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995,
USF&G cautions readers regarding certain forward-looking statements in the
following discussion and elsewhere in this Annual Report and in any other
statement made by, or on the behalf of, USF&G, whether or not in future filings
with the Securities and Exchange Commission. Forward-looking statements are
statements not based on historical information and which relate to future
operations, strategies, financial results or other developments. Forward-looking
statements are necessarily based upon estimates and assumptions that are
inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond USF&G's control and
many of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, USF&G. USF&G disclaims any obligation to
update forward-looking information.
Note: Certain prior-year amounts have been reclassified to conform to the 1996
presentation. A glossary of certain terms used in this discussion can be found
in Section 9; the terms are italicized the first time they appear in the text.
Index
1. Consolidated Results 14
2. Strategic Overview 16
3. Results of Operations 18
4. Reserves and Surplus 21
5. Investments 24
6. Financial Condition 27
7. Liquidity 28
8. Legal Contingencies and Regulation 29
9. Glossary of Terms 31
1. CONSOLIDATED RESULTS
1.1. Summary of net income
The table below shows the major components of net income.
(in millions) 1996 1995 1994
-----------------------
Property/casualty insurance operations $213 $240 $201
Life insurance operations 49 27 14
Parent and noninsurance operations (72) (85) (80)
-----------------------
Income from operations before net realized gains,
branch reorganization severance, facilities
exit (costs)/sublease income and income taxes 190 182 135
Net realized gains on investments 44 7 5
Branch reorganization severance (17) -- --
Facilities exit (costs)/sublease income 42 6 (183)
Income tax benefit, net 2 14 280
-----------------------
Net income $261 $209 $237
-----------------------
Property/casualty insurance segment results decreased $27 million in 1996
compared with 1995 due primarily to increased CATASTROPHE LOSSES in 1996. From
1994 to 1995, the property/casualty segment's results increased $39 million as a
result of premium growth and improved UNDERWRITING RESULTS. The life insurance
segment's year-over-year improved results in 1996 and 1995 were due to the
combined effects of higher product sales, improved spreads on annuity and
UNIVERSAL LIFE products and lower expenses. (Refer to Section 3 of this
Analysis.)
The results for the parent company and noninsurance operations for 1996 showed a
decrease in loss from operations of $13 million when compared with 1995. This
decrease was primarily attributable to reduced parent company expenses as a
result of the Corporation consolidating its Baltimore headquarters facilities
(refer to Section 1.2 of this Analysis), and reduced interest expense due to the
refinancing and repayments of corporate debt during 1996.
Net realized gains on investments in 1996 consisted primarily of a $78 million
gain on the sale of a subsidiary and $40 million of impairment losses on certain
real estate investments (refer to Section 5.3 of this Analysis). The branch
reorganization severance in 1996 resulted from the realignment of the field
workforce under the new business units (refer to Section 2 of this Analysis).
Net income in each of the three years included facilities exit costs/sublease
income related primarily to the consolidation of the headquarters facilities,
and income tax benefits related to the recognition of deferred tax assets (refer
to Section 1.3 of this Analysis).
1.2. Facilities exit costs/sublease income
As a result of USF&G's restructuring activities in the early 1990s and ongoing
efforts to improve the overall cost effectiveness of the Corporation, USF&G's
available headquarters office space significantly exceeded its needs,
particularly at the office building ("the Tower") in downtown Baltimore. USF&G
sold the Tower in 1984 and subsequently leased it back. From 1991 through 1994,
the total headquarters staff decreased by approximately 28 percent, including a
48 percent decrease in the number of employees who were located at the Tower.
During 1994, USF&G developed and committed to a plan to consolidate its
Baltimore headquarters facilities. The plan encompassed relocating all USF&G
personnel residing at the Tower to the Corporation's Mount Washington facilities
in Baltimore. The lease on the Tower, which expires in September 2009, will not
be terminated.
Implementation of the plan began in January 1995. The relocation of the Tower
personnel began in mid-1996 and was completed in January 1997. During 1995 and
1996, $24 million of improvements were made to the Mount Washington facilities,
including reconfigured office spaces and an additional parking garage. Another
$8 million is expected to be spent in 1997 to complete the plan.
The facilities exit costs of $183 million recorded in 1994 represented the
present value of the rent and other operating expenses then estimated to be
incurred under the Tower lease from the time USF&G vacated the Tower through the
expiration of the lease in 2009. These costs did not consider any potential
future sublease income, as such income was neither probable nor reasonably
estimable at that time. During 1996 and 1995, the reserve for facilities exit
costs was increased by $13 million and $16 million, respectively, due to the
amortization of the present value discount, and was reduced by $12 million and
$10 million, respectively, of rent and other operating expenses which were paid
in 1996 and 1995 but were recognized in the 1994 charge.
To the extent that additional or extended subleases are subsequently negotiated,
the present value of income to be received over the term of those subleases is
recognizable in the period such income becomes probable and reasonably
estimable. Net income for 1996 and 1995 included $54 million and $6 million,
respectively, of sublease income recognized as a result of USF&G's negotiation
of subleases with new and existing tenants. Currently, approximately 90 percent
of the Tower is sublet, including three tenants who occupy over 75 percent of
the Tower and whose subleases extend through the expiration of USF&G's lease in
2009. Net income for 1996 also included a credit of $12 million related to
reduced property tax assessments on the Tower which resulted from a settlement
reached with the State of Maryland and the City of Baltimore in June 1996.
Additionally, as a result of shifts in the overall business strategy (refer to
Section 2 of this Analysis), USF&G devised and implemented a plan in 1996 to
reorganize its branch system. This reorganization included the downsizing or
closure of several offices. For those offices where USF&G continues to be
responsible for the leases, the present value of the rent and other operating
expenses estimated to be incurred over the life of the leases and related to
unoccupied space, approximately $24 million, was recognized as facilities exit
costs in 1996.
1.3. Income taxes
The realization of deferred tax assets is dependent, in whole or in part, upon
the Corporation's ability to generate sufficient taxable income in future years.
Future levels of net income and taxable income from the core insurance
operations are dependent on several factors, including general economic and
specific insurance industry conditions, such as competitive pressures,
catastrophe losses, adverse loss experience, etc. Because of these risk factors,
as well as other factors beyond the control of management, no assurance can be
given that sufficient taxable income will be generated to realize the deferred
tax assets. Management has considered various risk factors in reaching its
conclusion that it is more likely than not that there will be sufficient future
taxable income to result in the realization of the recorded $436 million net
deferred tax asset. Based primarily upon the positive evidence associated with
the recent trend of improved operating results, USF&G has also determined that a
valuation allowance is no longer necessary as of December 31, 1996.
Beginning in 1997, USF&G expects to record income tax expense through its
Consolidated Statement of Operations, as it has now fully recognized all of its
deferred tax assets. The financial statement recognition of tax expense or
benefit is not necessarily an appropriate indicator of income taxes to be paid,
as the Corporation has income tax net operating loss carryforwards ("NOLs") of
$578 million available for regular tax purposes and $335 million for Alternative
Minimum Tax purposes remaining at December 31, 1996. These carryforwards will be
used to reduce income taxes payable in future years.
USF&G's tax returns have not been reviewed by the Internal Revenue Service
("IRS") since 1989 and the availability of the NOLs could be challenged by the
IRS upon review of returns through 1995. Management believes, however, that IRS
challenges that would limit the recoverability of the $436 million net deferred
tax asset are unlikely, and adjustments to the tax liability, if any, for years
through 1996 will not have a material adverse effect on USF&G's financial
position.
2. STRATEGIC OVERVIEW
In 1996, USF&G completed its realignment into a portfolio of businesses: the
Commercial Insurance Group ("CIG"), the Family and Business Insurance Group
("FBIG"), the Specialty Businesses, and Life Insurance. The realignment
recognizes the groups' distinctly different strategies of growth and
profitability. As individual businesses, each is able to develop its own
distinct products, distribution channels, technology systems and field
structures, and each is currently in its own stage of development, with a common
focus on long-term strategic positioning.
2.1. CIG
CIG is a product-driven business, characterized by a higher risk/higher return
book of business. CIG focuses on providing superior value-added products and
highly specialized underwriting and risk management capabilities to reach
discrete markets. Upon its base of standard middle market commercial business,
CIG is expanding its excess & surplus lines, and developing specialized product
capabilities to penetrate higher-margin market segments.
CIG reorganized its field structures in 1996, shifting from a shared,
broad-based field structure to one serving exclusively CIG target markets,
producers and customers. In addition to its general underwriting offices, CIG
operates separate business resource platforms individually dedicated to specific
specialized businesses such as excess & surplus, financial institutions,
government entities and technology, among others. CIG is also developing the
separate technological infrastructures necessary to support its varying product
lines.
Simultaneously with its field reorganization, CIG is realigning its distribution
channels to support its strategic market penetration. CIG now distributes its
products through multiple channels: retail, wholesale and surplus lines brokers
and agents. CIG is also developing various strategic alliances with other
insurance companies to further support the underwriting and servicing of
international exposures for its domestic insureds.
Enabled by these operational initiatives, CIG is steadily shifting its mix of
business from standard commercial products toward the specialized market
segments and excess & surplus lines, which management believes have profitable
growth opportunities, though they require more specialized underwriting and
entail greater risk. At the same time, CIG continues to institute various profit
improvement initiatives in its core business areas, as well as to exit markets
or restructure products where the profitability outlook is less favorable.
Overall, CIG's ability to achieve premium growth may be difficult in the near
future, given the intense price competition in the commercial lines markets and
changes in CIG's book of business, field structure and distribution systems.
2.2. FBIG
FBIG is principally a distribution-driven business consisting of small
commercial, personal and NONSTANDARD AUTO lines. This group is generally
characterized by a lower risk/lower return book of business, and, with the
exception of its exposure to natural catastrophes, can generate a stable and
consistent source of earnings. FBIG's products are commodity-like, in that
pricing, cost competitiveness and efficient processing are critical in gaining
and retaining customers, as well as achieving favorable underwriting results.
The similarities in the customer base, types of service and processing functions
between personal lines and small business commercial lines led to the
integration in 1995 of these lines into FBIG. In order to serve this customer
base with an efficient, low-cost structure, FBIG established three Centers for
Agency Services ("CASs"). These regional CASs, located in Atlanta, Baltimore and
Denver, handle all of FBIG's operations and underwriting functions except claims
handling. Claims are processed in a new Claim Reception Center in Tampa (refer
to Section 2.5 of this Analysis).
In 1996, FBIG announced that it would lower the commission rates on most of its
personal lines and some small commercial business products, effective April
1997. This action was taken to improve FBIG's profitability by bringing its
commission rates in line with industry averages. Management believes that this
action was necessary to improve FBIG's long-term competitive position and
profitability; however, this announcement has initially caused a reduction in
new business writings through the traditional agency plant, and is expected to
continue to restrain premium growth in the first half of 1997.
2.3. Specialty Businesses
USF&G's Specialty Businesses are higher risk/higher return businesses, relying
on market expertise and superior product/service value to succeed.
Discover Re
USF&G provides insurance, REINSURANCE and related services to the ALTERNATIVE
RISK TRANSFER market through Discover Re Managers, Inc. ("Discover Re"), a
wholly-owned subsidiary of USF&G Company. Discover Re is currently maintaining
its focus on its core products for individual self-insureds and pools, while
capitalizing on emerging opportunities to serve and reinsure CAPTIVE INSURERS.
Because less premium is retained on captive business, net written premium may
not rise as much as GROSS PROGRAM PREMIUM; however, the captive business is
expected to generate significant fee income.
F&G Re
Assumed reinsurance business, which has traditionally been very profitable for
USF&G, is managed by F&G Re, Inc. ("F&G Re"), a wholly-owned subsidiary of USF&G
Company. Assumed reinsurance contracts are generally written through domestic
and international reinsurance brokers, and cover a broad array of risks. In
response to the intense pricing and market share competition in the assumed
reinsurance business, F&G Re expanded its international presence in 1996, when
USF&G became a limited liability corporate partner in a Lloyd's of London
syndicate. Further international expansion is expected in 1997 with the opening
of an F&G Re office in Hong Kong, and USF&G's acquisition of Ashley Palmer
Limited, through which USF&G's Lloyd's of London managing agency acquired the
right to manage three additional syndicates, thereby increasing its capacity
under management to over (pounds)180 million (approximately $300 million). F&G
Re also established a FACULTATIVE REINSURANCE operation in 1996.
Surety Group
The Surety Group provides contract and noncontract surety bonds to construction
companies, commercial businesses and individuals. Over the last few years, the
Surety Group has been shifting its mix of business toward its small and large
contractor segments, which have historically been USF&G's most profitable surety
segments and generally produce stable underwriting profits.
In 1996, the Surety Group expanded its international presence through the
acquisition of Afianzadora Insurgentes, S.A. de C.V. ("Afianzadora"), the
largest surety bond company in Mexico. In 1997, the Surety Group will continue
to explore the expansion of its international business. The Surety Group will
also focus on growing its domestic market share, particularly in the western
United States through its new San Francisco office.
2.4. Life Insurance
Life insurance products are written through F&G Life, a wholly-owned subsidiary
of USF&G Corporation. F&G Life's principal products are DEFERRED ANNUITIES
(including tax sheltered annuities), sTRUCTURED SETTLEMENT ANNUITIES, IMMEDIATE
ANNUITIES and life insurance products.
In 1996, F&G Life completed the outsourcing of its policy administration and
information services functions. The outsourcing of these functions has already
begun to provide much of the expected benefits, such as improved customer
service and reduced per-policy operating costs. Also in 1996, F&G Life entered
into a coinsurance contract (the "Coinsurance Contract") with an unaffiliated
life insurance company to cede all of the remaining block of single premium
deferred annuities ("SPDAs") that were originally sold through stock brokerage
firms (the "broker SPDA block"). F&G Life's future profitability and cash flows
are expected to improve substantially as a result of the removal of this
significant block of underperforming business from F&G Life's direct
obligations.
Since 1993, F&G Life has introduced a variety of new products, primarily
annuities, which have dramatically increased its sales. In 1997, F&G Life plans
to continue developing new products, particularly life insurance offerings, and
broaden its distribution through the addition of specialized marketing
organizations, while also increasing its penetration of existing sales channels.
Management is also focusing its efforts on improving its INVESTMENT SPREADS on
its annuity and universal life products through asset/liability management.
2.5. Claim
In September 1996, USF&G opened a national Claim Reception Center (the "CRC") in
Tampa. The CRC provides toll-free, 24-hour claim reporting service to customers
and agents throughout the United States. Though currently in its start-up stage,
management expects the CRC to eventually process 80 percent of the total number
of property/casualty claims submitted. Advanced telecommunications systems in
place at the CRC facilitate rapid response time and enhanced data management,
while the CRC's database of preferred contractors allows for quick and reliable
claims service. The combination of these state-of-the-art systems in one center
is expected to not only improve customer service, but should also reduce
per-claim loss adjustment expenses once the CRC is fully operational.
2.6. Information systems
USF&G's long-term competitive advantage, like most companies' in the
"information age", is influenced by the speed, efficiency and reliability of its
information systems. Over the past several years, the Corporation's Information
Services Department ("I/S") has developed and implemented various client/server
programs for its users, including the systems at the CRC and FBIG's Business
Foundation System, which provides fully-automated policy processing capabilities
to the CASs. I/S focuses on balancing short-term, business-critical demands with
its long-term goal of maintaining a cost-competitive computing environment. In
that environment, the various businesses share a common systems "backbone" which
supports compatible workstations and server programs configured specifically for
each user group. Highly-specialized applications are designed with the
flexibility to be easily and efficiently altered as a business unit's needs
change, or re-used in the development of new applications. The cost-saving
benefits of this state-of-the-art environment have been, and in the near future
will continue to be, adversely impacted by the ongoing operation and maintenance
of older, more costly systems until those systems can be fully replaced.
3. RESULTS OF OPERATIONS
3.1. Property/casualty insurance
Property/casualty insurance operations, consisting of CIG, FBIG and Specialty
Businesses, accounted for 88 percent of USF&G's revenues before net realized
gains in 1996, compared with 85 percent in 1995 and 1994, and 70 percent of its
assets at December 31, 1996, compared with 68 percent at December 31, 1995 and
1994.
Financial highlights for the consolidated property/casualty insurance operations
were as follows:
(in millions) 1996 1995 1994
-------------------------
Premiums written* $2,639 $2,563 $2,389
Premiums earned* 2,586 2,492 2,356
Net underwriting losses (167) (156) (202)
Income from operations before net realized
gains, branch reorganization severance,
facilities exit costs/sublease income and
income taxes 213 240 201
-------------------------
*See Glossary of Terms
A significant measurement of a property/casualty company's underwriting
performance is its combined ratio, which is the sum of its LOSS RATIO and
EXPENSE RATIO. Consolidated property/casualty ratios, calculated based on
statutory accounting practices and generally accepted accounting principles
("GAAP"), were as follows:
1996 1995 1994
-------------------------
Statutory combined ratio* 105.6% 105.8% 107.9%
GAAP combined ratio 106.5 106.3 108.5
-------------------------
*Statutory underwriting ratios exclude the effects of policyholder dividends
which, if included, would increase the ratios by 0.3 points each year.
Note: In a period of increasing premiums and expense reductions, GAAP combined
ratios are typically higher than statutory, since the recognition of increases
in premiums written and reductions in policy acquisition costs, which are
reflected immediately in the statutory expense ratio, are deferred over the
policy term under GAAP.
Underwriting results deteriorated $11 million from 1995 to 1996, due primarily
to a high level of catastrophe losses incurred during 1996. The adverse effect
of the catastrophe losses was partially mitigated by favorable loss reserve
development, as well as by management's continuing strategic initiatives to
improve underwriting results. Overall, the combined ratios have improved
approximately 2 points since 1994 - more than 3 points when catastrophe losses
are excluded - largely as a result of management's initiatives to improve the
product/market mix, apply stricter underwriting standards, and reduce
underwriting and loss adjustment expenses.
Gross catastrophe losses totaled $114 million in 1996, compared with $71 million
in 1995 and $73 million in 1994. These losses, net of losses ceded to
reinsurers, were $108 million in 1996, $63 million in 1995 and $67 million in
1994. Catastrophes in 1996 included severe winter storms and floods in the first
quarter, and Hurricane Fran and a freak windstorm in Arizona in the third
quarter. The 1996 catastrophe losses were the second-highest level of
catastrophe losses ever experienced by USF&G, exceeded only by the 1992
catastrophe losses, which included the impact of Hurricane Andrew. The 1995
catastrophe losses were primarily due to several hurricanes, as well as various
hailstorms, tornadoes and floods, and the April 1995 bombing of the federal
building in Oklahoma City. Net catastrophe losses in 1994 were largely the
result of severe winter storms and the Los Angeles earthquake.
The table below shows the major components of property/casualty premiums
written and premiums earned.
1996 1995 1994
Premiums Premiums Premiums
(in millions) Written Earned Written Earned Written Earned
------------------------------------------------
Voluntary direct $2,194 $2,164 $2,138 $2,055 $2,018 $1,970
Ceded reinsurance (127) (135) (154) (154) (162) (150)
------------------------------------------------
Net voluntary 2,067 2,029 1,984 1,901 1,856 1,820
Pools and associations 42 55 51 75 107 124
Alternative risk transfer 27 22 27 25 27 22
Assumed reinsurance 499 480 512 490 415 395
Other premium
adjustments 4 -- (11) 1 (16) (5)
------------------------------------------------
Total property/casualty
segment $2,639 $2,586 $2,563 $2,492 $2,389 $2,356
------------------------------------------------
Voluntary direct premiums represent business generated directly by CIG, FBIG and
Surety's underwriting operations. Voluntary direct premiums written increased
three percent in 1996 in response to management's strategies to grow business in
targeted market segments. Premiums written from pools and associations decreased
61 percent since 1994, as USF&G actively reduced its exposure in the
unprofitable involuntary pools markets. Competitive pricing pressures held
assumed reinsurance premiums written in 1996 to approximately 1995 levels, after
a 23 percent growth in 1995 from 1994, which was due primarily to increases in
international business.
CIG
The following table shows underwriting results for CIG:
(dollars in millions) 1996 1995
-----------------
Voluntary direct premiums written $1,013 $975
Net premiums written 964 921
Underwriting loss (82) (97)
GAAP Underwriting Ratios:
Loss ratio 74.3% 75.6%
Expense ratio 34.3 35.5
Combined ratio 108.6 111.1
------------------
CIG voluntary direct premiums written increased four percent in 1996 when
compared with 1995. The increases were primarily in the excess & surplus lines
and specialized market segments, which represented 42 percent of CIG's direct
premiums in 1996, compared with 36 percent in 1995. In 1997, CIG expects to
continue the growth of its specialized market segments and excess & surplus
lines business, as it continues to shift its mix of business from standard
commercial lines toward these typically higher-margin product lines.
Underwriting results for CIG improved $15 million in 1996 when compared with
1995, and the combined ratio improved 2.5 points over that period, largely due
to the success of strategies, implemented as an integral part of the formation
of CIG, to improve the mix of business and control expenses. In addition, CIG's
1996 underwriting results benefited from favorable development in workers'
compensation reserves, which resulted from the recognition of the effect on
reserve estimation models of the increased use of structured settlements to
close claims. This favorable development was partially offset by reserve
increases for the current accident year in other standard commercial lines, such
as general liability and commercial auto.
FBIG
The following table shows underwriting results for FBIG:
(dollars in millions) 1996 1995
-----------------
Voluntary direct premiums written $1,007 $997
Net premiums written 989 974
Underwriting loss (147) (119)
GAAP Underwriting Ratios:
Loss ratio 79.0% 74.5%
Expense ratio 35.9 37.6
Combined ratio 114.9 112.1
-----------------
FBIG voluntary direct premiums were relatively flat in 1996 compared with 1995,
primarily due to intense competition in the personal lines markets. Management's
announcement in the third quarter of 1996 that it will lower the commission
rates on most of its personal and some small commercial business, effective
April 1997, also had an adverse impact on new business writings. FBIG incurred
abnormally high levels of catastrophe and other severe weather related losses in
1996, particularly in its homeowners lines, which adversely impacted its loss
ratio. Excluding catastrophes, loss ratios for FBIG would have been 71.5 and
71.7 in 1996 and 1995, respectively. This adverse loss experience was somewhat
offset by a 1.7 point decrease in the expense ratio from 1995 to 1996, as a
result of continued expense management. This expense ratio improvement is
expected to continue in 1997, as FBIG begins to realize expense savings as a
result of operating efficiency benefits generated by the CASs and the lower
commission rates.
Specialty Businesses
Discover Re
The following table shows underwriting results for Discover Re:
(dollars in millions) 1996 1995 1994
--------------------------
Gross program premium $129 $77 $75
Net premiums written 27 27 27
Service fees 12 7 5
Underwriting gain 2 1 --
GAAP Underwriting Ratios:
Loss ratio 77.2% 79.7% 76.2%
Expense ratio 12.4 16.9 23.8
Combined ratio 89.6 96.6 100.0
--------------------------
The significant decrease in the expense ratio in 1995 from 1994 resulted from a
change in the premium assumption and net retention structure of business written
by Discover Re. As a result of the change, service fees, which were previously
recognizable as nonunderwriting income, are now classified as ceding allowances
and recognized as a reduction of underwriting expenses. These service fees
increased in 1996 when compared with 1995, due to the increased gross program
premiums.
F&G Re
The following table shows underwriting results for reinsurance assumed through
F&G Re:
(dollars in millions) 1996 1995 1994
--------------------------
Net Premiums Written:
Traditional risk $326 $297 $235
Finite risk* 173 215 180
--------------------------
Total premiums written $499 $512 $415
Underwriting gain $ 52 $ 43 $ 40
--------------------------
GAAP Underwriting Ratios:
Loss ratio 63.9% 70.2% 73.2%
Expense ratio 25.4 21.0 16.5
Combined ratio 89.3 91.2 89.7
--------------------------
*See Glossary of Terms
In recent years, large catastrophe losses, such as Hurricane Andrew in 1992 and
the Los Angeles earthquake in 1994, increased the demand for reinsurance in both
international and domestic markets. However, that demand leveled off in 1995,
and pricing and market share became increasingly significant factors in the
assumed reinsurance industry. Accordingly, 1996 assumed reinsurance premiums
written have declined slightly when compared with 1995. In response to the
increased competition, management shifted the premium mix toward the typically
higher-margin traditional risk reinsurance, resulting in the $9 million increase
in F&G Re's underwriting gain. With the current market conditions, USF&G expects
a possible decline in assumed reinsurance premiums written in 1997, which could
result in a reduced underwriting gain.
Surety
The following table shows underwriting results for the Surety Group:
(dollars in millions) 1996 1995 1994
--------------------------
Voluntary direct premiums written $174 $166 $148
Net premiums written 160 129 113
Underwriting gain 8 16 3
GAAP Underwriting Ratios:
Loss ratio 39.1% 36.5% 37.9%
Expense ratio 54.9 49.8 58.9
Combined ratio 94.0 86.3 96.8
--------------------------
Surety's direct premiums written increased five percent in 1996 when compared
with 1995, primarily due to increased penetration in the domestic contract
surety business. The 14 percent increase from 1994 to 1995 was largely related
to increased international writings in the contract surety product line.
Abnormally large contract surety losses in the first half of the year led to the
$8 million decline in underwriting gains in 1996 when compared with 1995, while
the $13 million increase in underwriting gains in 1995 over 1994 was primarily
due to premium growth, as well as lower underwriting expenses as a result of
management's reconfiguration of Surety's home office and field structures. In
1997, the Surety Group expects to increase its international presence through
new marketing distribution channels created by its 1996 acquisition of
Afianzadora.
Commercial Lines and Personal Lines
Prior to the creation of CIG and FBIG in 1995, information regarding results of
operations were segregated along product lines for commercial and personal
property/casualty insurance. The 1995 and 1994 commercial lines and personal
lines results were as follows:
Commercial Lines
(dollars in millions) 1995 1994
-----------------
Voluntary direct premiums written $1,338 $1,231
Net premiums written 1,272 1,220
Underwriting loss (139) (183)
GAAP Underwriting Ratios:
Loss ratio 74.4% 77.4%
Expense ratio 36.9 37.8
Combined ratio 111.3 115.2
-----------------
Commercial lines voluntary direct premiums written increased nine percent in
1995 when compared with 1994, the result of new business growth in targeted
specialty product lines, including excess property, inland marine,
municipalities and financial institutions. From 1994 to 1995, underwriting
results in the commercial lines category improved $44 million, and the combined
ratio improved 3.9 points. These improvements were attributable to the
implementation of strategies to improve the mix of business and control expenses
while maintaining strict underwriting standards and pricing discipline.
Personal Lines
(dollars in millions) 1995 1994
-----------------
Voluntary direct premiums written $634 $639
Net premiums written 623 614
Underwriting loss (77) (62)
GAAP Underwriting Ratios:
Loss ratio 76.3% 73.8%
Expense ratio 35.9 36.0
Combined ratio 112.2 109.8
-----------------
Personal lines voluntary direct premiums were relatively flat in 1995 when
compared with 1994, as management balanced growth in certain targeted markets
against strategies to selectively exit other markets and reduce exposure to
certain catastrophe-prone geographic areas.
3.2. Life insurance
Life insurance operations (F&G Life) represented 12 percent of USF&G's revenues
before net realized gains in 1996, compared with 14 percent in 1995 and 1994.
F&G Life also represented 29 percent of the assets at December 31, 1996,
compared with 31 percent and 33 percent at December 31, 1995 and 1994,
respectively.
The Coinsurance Contract became effective August 1, 1996. At the time of the
transaction, the broker SPDA block had a current ACCOUNT VALUE of approximately
$964 million. The transaction had no material effect on earnings, but, by
removing the broker SPDA block from F&G Life's direct obligations, it reduced
F&G Life's capital requirements. This enabled the payment of a $110 million
dividend to USF&G Corporation, thereby allowing capital to be used in other
business opportunities.
Financial highlights for F&G Life were as follows:
(in millions) 1996 1995 1994
------------------------
Sales $427 $348 $286
Premiums earned 145 174 152
Net investment income 269 306 317
Income from operations before net
realized gains, branch reorganization
severance, facilities exit costs/sublease
income and income taxes 49 27 14
------------------------
The decrease in F&G Life's premiums earned in 1996 compared with 1995 and 1994
corresponded to a decrease in sales of structured settlement annuities. Despite
this decrease, and lower net investment income (refer to Section 5.2 of this
Analysis), income for the year ended December 31, 1996 increased substantially
when compared with 1995 and 1994, largely as a result of the significant
increase in SPDA sales, improved spread management on annuity and universal life
products, and lower expenses. Results for 1995 included $4 million of
transition-related costs, including employee separation costs, as a result of
F&G Life's agreement to outsource its information services and policy
administration.
Sales
The following table shows life insurance and annuity sales (premiums and
deposits) by distribution system and product type.
(in millions) 1996 1995 1994
---------------------------
Distribution System:
Brokerage $255 $125 $ 94
Direct structured settlements 79 108 88
National wholesaler 79 91 71
Other 14 24 33
---------------------------
Total $427 $348 $286
---------------------------
Product Type:
Single premium deferred annuities $231 $112 $ 82
Structured settlement annuities 79 108 88
Tax sheltered annuities 78 84 63
Other annuities 27 30 41
Life insurance 12 14 12
---------------------------
Total $427 $348 $286
---------------------------
Sales increased significantly over the past two years, including a 107 percent
increase in SPDA sales in 1996 when compared with 1995. This sales growth was
primarily due to the introduction of new products, and management's
concentration on the expansion of existing distribution channels, while also
developing other marketing networks. Despite F&G Life's attention to product
development and expanding its distribution channels, demand for its products is
affected by fluctuating interest rates and the relative attractiveness of
alternative investment, annuity or insurance products, as well as its credit
ratings. As a result, there is no assurance that the improved sales trend will
continue. Total life insurance in force was $10.7 billion at December 31, 1996,
compared with $11.4 billion and $11.8 billion at December 31, 1995 and 1994,
respectively.
Policy surrenders
Deferred annuities and universal life products are subject to surrender. Nearly
all of F&G Life's surrenderable annuity policies allow a refund of the cash
value balance less a surrender charge. The surrender charge varies by product.
F&G Life's current product offerings have surrender charges that decline from
nine percent in the first policy year to zero percent by the tenth policy year.
Such built-in surrender charges provide protection against premature policy
surrender.
Policy surrenders totaled $471 million in 1996, compared with $587 million and
$576 million in 1995 and 1994, respectively. Despite increased surrenders during
the first half of 1996, primarily due to increased competition from other
investment vehicles, full-year 1996 surrenders were significantly below 1995 and
1994 levels, due to the coinsurance of the broker SPDA block, which greatly
reduced surrenders in the second half of the year. This reduced level of
surrenders is expected to continue in 1997.
4. RESERVES AND SURPLUS
4.1. Mass torts
USF&G categorizes long-term exposures where multiple claims relate to a similar
cause of loss (excluding catastrophes) as "mass torts". Mass tort exposures
include construction defect, environmental and asbestos claims.
Reserves for losses that have been reported and certain legal expenses are
established on the "case basis". Bulk reserves are established in addition to
the case reserves to reflect unreported claims and future development on
reported claims. Total case and bulk reserves for these mass torts, net of ceded
reinsurance, comprised approximately ten percent of the total net property/
casualty reserves for unpaid losses and loss expenses at December 31, 1996, 1995
and 1994.
The following tables set forth selected information for each of the major
categories of mass torts, net of ceded reinsurance.
Construction
(in millions) Defect Environmental Asbestos
--------------------------------------
Net reserves at
December 31, 1993 $74 $249 $125
Losses incurred (6) 106 5
Claims paid (13) (26) (5)
--------------------------------------
Net reserves at
December 31, 1994 55 329 125
Losses incurred 2 10 16
Claims paid (17) (27) (5)
--------------------------------------
Net reserves at
December 31, 1995 40 312 136
Losses incurred 12 20 7
Claims paid (12) (24) (8)
--------------------------------------
Net reserves at
December 31, 1996 $40 $308 $135
--------------------------------------
Net Reserves at December 31
(in millions) 1996 1995 1994
--------------------------------------
Construction Defect:
Case reserves $ 20 $ 20 $ 18
Bulk reserves 20 20 37
--------------------------------------
Total $ 40 $ 40 $ 55
Environmental:
Case reserves $ 60 $ 57 $ 65
Bulk reserves 248 255 264
--------------------------------------
Total $308 $312 $329
Asbestos:
Case reserves $ 38 $ 36 $ 25
Bulk reserves 97 100 100
--------------------------------------
Total $135 $136 $125
--------------------------------------
The environmental incurred losses in 1994 were primarily due to a reallocation
of bulk reserves from other lines of business based on enhancements in the
actuarial database with respect to such claims. In 1995 and 1996, both case and
bulk reserve levels for environmental and asbestos have remained relatively
flat. This stability is reflective of management's belief that USF&G's reserve
position is adequate relative to its exposure to environmental and asbestos
matters. USF&G's customer base generally does not include large manufacturing
companies, which tend to incur most of the known environmental and asbestos
exposures. Many of USF&G's environmental claims relate to small industrial or
transportation accidents which individually are unlikely to involve material
exposures. In addition, USF&G has traditionally been a primary coverage carrier,
having written relatively little high-level excess coverage; therefore,
liability exposures are generally restricted to primary coverage limits. In
1996, approximately 32 percent of paid environmental claims related to matters
under which a USF&G insured was a potentially responsible party ("PRP") under
the Comprehensive Environmental Response, Compensation and Liability Act,
commonly referred to as "Superfund", but many of these PRPs were only
peripherally involved. In 1995 and 1994, respectively, 22 percent and 28 percent
of the environmental claims paid related to Superfund. (Refer to Section 8.5 of
this Analysis.)
The level of loss reserves for both current and prior years' claims is
continually monitored and adjusted for changing economic, social, judicial and
legislative conditions, as well as for changes in historical trends as
information regarding such conditions and actual claims develops. Management
believes that loss reserves are adequate, but establishing appropriate reserves,
particularly with respect to environmental, asbestos and other long-term
exposure claims, is highly judgmental and an inherently uncertain process. It is
possible that, as conditions change and claims experience develops, additional
reserves may be required in the future. There can be no assurance that such
adjustments will not have a material adverse effect on USF&G's financial
condition or results of operations.
4.2. Reinsurance
USF&G reinsures portions of its policy risks with other insurance companies or
underwriters. Reinsurance allows USF&G to obtain indemnification against losses
associated with insurance contracts it has written by entering into a
reinsurance contract with another insurance enterprise (the reinsurer). USF&G
pays (cedes) an amount to the reinsurer which in turn agrees to reimburse USF&G
for a specified portion of any claims paid under the reinsured contracts.
Reinsurance gives USF&G the ability to write certain individually large risks or
groups of risks, and helps to control its exposure to losses by ceding a portion
of such large risks. USF&G's ceded reinsurance agreements are generally
structured on a treaty basis whereby all risks meeting certain criteria are
automatically reinsured. USF&G's property catastrophe loss retention level at
December 31, 1996 was $75 million for both the first and second loss, with
coverage limits of $175 million in excess of the retention level. The retention
level for both 1995 and 1994 was $75 million which, in the event of a second
loss, was lowered to $50 million. Coverage limits of up to $140 million and
$165 million in excess of the first and second loss, respectively, were
available in both 1995 and 1994.
4.3. Dividend restrictions
There are certain restrictions on payments of dividends by insurance
subsidiaries that may limit USF&G Corporation's ability to receive funds from
its subsidiaries. Under the Maryland Insurance Code, Maryland insurance
subsidiaries, such as USF&G Company and F&G Life, must provide the Maryland
Insurance Commissioner (the "Commissioner") with not less than thirty days'
prior written notice before payment of an "extraordinary dividend" to its
holding company. "Extraordinary dividends" are dividends which, together with
any dividends paid during the immediately preceding twelve-month period, would
be in excess of ten percent of the subsidiary's statutory POLICYHOLDERS' SURPLUS
as of the prior calendar year end. Extraordinary dividends may not be paid until
either such thirty-day period has expired and the Commissioner has not
disapproved the payment or the Commissioner has approved the payment within such
period. In addition, ten days' prior notice of any other dividend must be given
to the Commissioner prior to payment, and the Commissioner has the right to
prevent payment of such dividend if it is determined that such payment could
impair the insurer's surplus or financial condition.
During 1996, F&G Life, with the Commissioner's consent, paid extraordinary
dividends to USF&G Corporation. Because any dividends paid during the
immediately preceding twelve-month period are considered when determining
whether future dividends constitute extraordinary dividends, any dividends which
F&G Life would propose to pay in the twelve-month period beginning September 30,
1996 would be deemed extraordinary dividends and subject to the thirty-day
notice period described above. Dividends of up to $137 million are available for
payment from USF&G Company to USF&G Corporation during 1997 without being deemed
extraordinary. The application of the thirty-day notice requirement to any
dividends of its subsidiaries is not expected to materially affect the liquidity
of USF&G Corporation. Additional information regarding dividends paid to USF&G
Corporation by its insurance subsidiaries may be found in Note 7.5, "Dividend
Restrictions", to the consolidated financial statements.
4.4. Capacity
A traditional measure of growth capacity for property/casualty insurers is the
ratio of premiums written to statutory policyholders' surplus. At the end of
1996, USF&G Company's premium-to-surplus ratio was 1.8:1, compared with 1.7:1
and 1.4:1 at the end of 1995 and 1994, respectively. The increase in 1996 and
1995 when compared with 1994 was due to the reduction in the policyholders'
surplus as a result of an extraordinary dividend by which USF&G Company
transferred all of the capital stock of F&G Life to USF&G Corporation. Insurance
regulators generally accept a ceiling for this ratio of 3.0:1; therefore, at its
current ratio, USF&G has the capacity to grow by writing new business.
4.5. Risk-based capital
The National Association of Insurance Commissioners ("NAIC") has adopted model
regulations which establish minimum capitalization requirements using a
"risk-based capital" formula. These regulations define four levels at which
corrective action must be taken: (1) the "company action level", at which the
company must submit a comprehensive financial plan with specific proposals to
address certain financial problems; (2) the "regulatory action level", at which
the appropriate regulatory authorities will perform a financial analysis and
order certain corrective actions; (3) the "authorized control level", at which
the regulatory authorities may place the company under regulatory control; and
(4) the "mandatory control level", at which the regulatory authorities must
place the company under regulatory control.
Application of these levels depends upon the insurer's "adjusted risk-based
capital" as a percentage of the "minimum risk-based capital". Risk-based capital
is calculated after adjusting capital for certain asset, credit, market,
underwriting, off-balance sheet and other risks inherent in the assets,
liabilities and business of the insurer. Various levels of corrective actions
are required if the adjusted risk-based capital is less than 200 percent of the
authorized control level risk-based capital.
USF&G Company had adjusted risk-based capital of $1.3 billion, $1.2 billion and
$1.6 billion as of December 31, 1996, 1995 and 1994, respectively, which
represented 286 percent, 334 percent and 382 percent, respectively, of the
authorized control level risk-based capital. The decline from 1995 to 1996 was
primarily the result of the phase-in of the required method of calculating
risk-based capital, whereas the decline from 1994 to 1995 was primarily due to
the extraordinary dividend paid by USF&G Company to USF&G Corporation in 1995,
consisting of all of the capital stock of F&G Life. F&G Life had adjusted
risk-based capital of $294 million, $383 million and $430 million as of December
31, 1996, 1995 and 1994, respectively, which represented 467 percent, 459
percent and 425 percent of the authorized control level risk-based capital as of
those dates. Accordingly, as of the dates indicated, both USF&G Company and F&G
Life had adjusted risk-based capital significantly above the levels which would
require corrective action.
5. INVESTMENTS
USF&G maintains an investment mix concentrated in high-quality fixed-income
securities. Fixed maturities and total investments decreased in 1996 due to the
transfer of $918 million of F&G Life's fixed maturities and a $242 million
decline in unrealized gains in the remaining fixed maturities portfolio. The
fixed maturities that backed F&G Life's broker SPDA block reserves were
transferred to the unaffiliated life insurance company under the terms of the
Coinsurance Contract. The following table shows the distribution of USF&G's
investment portfolio.
At December 31
(dollars in millions) 1996 1995 1994
------------------------------
Total investments $10,076 $11,107 $10,561
------------------------------
Fixed Maturities:
Held to maturity --% --% 44%
Available for sale 81 85 39
------------------------------
Total fixed maturities 81 85 83
Common and preferred stocks -- 1 1
Short-term investments 5 3 4
Mortgage loans and real estate 10 8 9
Other invested assets 4 3 3
------------------------------
Total 100% 100% 100%
------------------------------
5.1. Investment strategy
USF&G's primary objective is to maintain a high-quality investment portfolio
structured to maximize returns consistent with the financial goals of each
business segment while operating within approved policy guidelines and
maintaining sufficient liquidity to fund cash disbursements. Investment policies
and strategies are approved by senior management and reviewed by the Board of
Directors. Sophisticated proprietary financial modeling systems are employed in
the management of the assets. Investment activities are managed based on the
individual requirements of the property/casualty and life insurance segments and
the characteristics of each segment's underlying liabilities.
The following table shows the distribution of the investment portfolio for the
property/casualty insurance segment.
At December 31
(dollars in millions) 1996 1995 1994
-----------------------------
Total investments $6,860 $6,787 $6,439
-----------------------------
Taxable fixed maturities 76% 83% 80%
Tax-exempt fixed maturities 5 1 2
Common and preferred stocks -- -- 1
Short-term investments 7 3 4
Mortgage loans 4 3 2
Real estate 3 5 6
Other invested assets 5 5 5
-----------------------------
Total 100% 100% 100%
-----------------------------
The property/casualty investment strategy encompasses factors such as risk,
duration, return and regulatory requirements. The real estate strategy has been
and continues to be to reduce equity real estate holdings and reinvest in
income-producing commercial mortgage loans. The fixed maturity strategy has been
focused on purchasing investment-grade corporate bonds with maturities that best
match the property/casualty segment's liability structure. As this segment's
income tax position changes as a result of profitability and the depletion of
its income tax NOLs, the focus will turn toward investing available cash flows
into a higher proportion of tax-exempt securities in order to maximize after-tax
investment income.
The following table shows the distribution of the investment portfolio for the
life insurance segment.
At December 31
(dollars in millions) 1996 1995 1994
----------------------------
Total investments $3,174 $4,297 $4,202
----------------------------
Taxable fixed maturities 83% 88% 82%
Common and preferred stocks -- -- --
Short-term investments 5 2 5
Policy loans 2 2 1
Mortgage loans 5 2 5
Real estate 5 4 6
Other invested assets -- 2 1
----------------------------
Total 100% 100% 100%
----------------------------
The life insurance investment strategy also encompasses factors such as risk,
duration, return and regulatory requirements, and the real estate strategy is
consistent with that of the property/casualty segment. The life insurance
segment's fixed maturity strategy emphasizes the reduction of mortgage-backed
security exposure due to the potentially volatile cash flow characteristics
compared with the underlying liabilities. The focus going forward will be to
maintain a close duration match by product line through explicitly investing new
premium cash flows to match new liabilities. The portfolio mix will remain
relatively stable with a continued emphasis on noncallable corporate bonds and
limited exposure to HIGH-YIELD BONDS and mortgage-backed securities.
5.2. Net investment income
The following table shows the components of net investment income.
(dollars in millions) 1996 1995 1994
---------------------------
Net investment income from:
Taxable fixed maturities $626 $658 $668
Tax-exempt fixed maturities 4 6 6
Common and preferred stocks 3 4 7
Short-term investments 20 23 14
Mortgage loans and real estate 48 46 58
Other investment income, net of
interest expense on funds held 19 13 9
---------------------------
Total investment income 720 750 762
Investment expenses (15) (17) (13)
---------------------------
Net investment income $705 $733 $749
---------------------------
Average annualized yields:
Total investments 6.9% 6.9% 6.9%
Fixed maturities 7.3% 7.4% 7.3%
---------------------------
Investment income declined primarily due to the aforementioned decline in F&G
Life's fixed maturities portfolio. Fluctuations in short-term interest income
were a result of varying short-term interest rates, as well as fluctuations in
the asset balances. Investment income on mortgage loans and real estate for 1996
reflected the strategy of reducing equity real estate holdings and reinvesting
in income-producing commercial mortgage loans. Included in investment income on
mortgage loans and real estate for 1994 was $8 million related to timberland
properties which were sold in 1994. Other investment income in 1996, 1995 and
1994 included $19 million, $26 million and $17 million, respectively, of income
related to USF&G's share of earnings from an equity interest in RenaissanceRe
Holdings, Ltd. ("RenaissanceRe"), a property reinsurance company in Bermuda.
Future income from the investment in RenaissanceRe is subject to volatility and
exposure to catastrophe losses and other risks inherent in the property/casualty
reinsurance industry. Also netted against other investment income was interest
credited to funds held on assumed reinsurance contracts of $20 million,
$31 million and $25 million in 1996, 1995 and 1994, respectively.
5.3. Net realized gains on investments
(in millions) 1996 1995 1994
---------------------------
Net Gains (Losses) on Sales:
Fixed maturities $(12) $ 6 $ 3
Common and preferred stocks 79 4 --
Mortgage loans and real estate 17 2 7
Other 18 18 5
---------------------------
Net gains on sales 102 30 15
Impairments (58) (23) (10)
---------------------------
Net realized gains on investments $ 44 $ 7 $ 5
---------------------------
Realized gains on common and preferred stocks in 1996 were largely the result of
a $78 million gain on the sale of USF&G's ownership interest in Chancellor
Capital Management, Inc. Realized gains on sales of mortgage loans and real
estate in 1996 resulted from the sale of two operating properties and numerous
nonincome-producing land investments. Other realized gains in 1996, 1995 and
1994 primarily related to USF&G's share of gains from its equity in certain
venture capital-type limited partnerships.
During 1996, the business strategy for a land development project was revised to
accelerate the period of time to dispose of the assets through more aggressive
marketing and lower selling prices, resulting in a lower level of estimated
future cash flows. In addition, the carrying value of an operating property was
reduced as a result of the commencement of efforts to sell the property.
A $40 million reduction in the carrying value of these real estate investments
to fair value was recognized in the year ended December 31, 1996. The
investments' fair values were based on the estimated future cash flows
discounted at a market rate of interest.
5.4. Unrealized gains (losses)
The components of the changes in unrealized gains (losses) were as follows:
(in millions) 1996 1995 1994
----------------------------
Fixed maturities available for sale $(242) $ 524 $(407)
Deferred policy acquisition costs and
policy benefits adjustment 54 (106) 63
Common and preferred stocks 2 4 3
Foreign currency and other 10 (4) 3
----------------------------
Total change in unrealized
gains (losses) before taxes (176) 418 (338)
Deferred tax on net unrealized gains (33) -- --
----------------------------
Net change in unrealized gains
(losses) $(209) $ 418 $(338)
----------------------------
Fluctuations in the unrealized gains and losses on fixed maturities are
primarily a result of fluctuating interest rates. Yields on U.S. Treasuries with
2- to 30-year maturities increased an average of 78 basis points during 1996,
fell an average of 235 basis points in 1995, and increased an average of 259
basis points in 1994. As a result, the net unrealized gain on fixed maturities
available for sale at December 31, 1996 was $98 million, compared with a net
unrealized gain at December 31, 1995 of $340 million and a net unrealized loss
at December 31, 1994 of $184 million. Also affecting the 1995 change in
unrealized gains on fixed maturities was the 1995 reclassification of the entire
"held to maturity" fixed maturity portfolio to "available for sale". Unrealized
gains and losses on fixed maturities are offset by related changes in the
deferred policy acquisition costs ("DPAC") and policy benefits adjustment, which
reflects assumptions about the effect of potential sales of fixed maturities
available for sale on future amortization of the life insurance segment's DPAC.
The DPAC and policy benefits adjustment was a loss of $19 million at December
31, 1996, compared with a loss of $73 million at December 31, 1995 and a gain of
$33 million at December 31, 1994. The tax effect on net unrealized gains at
December 31, 1996 was $33 million. The tax effect on net unrealized gains
(losses) at December 31, 1995 and 1994 was offset by the deferred tax asset
valuation allowance, pursuant to Statement of Financial Accounting Standards
("SFAS") No. 109. This valuation allowance was eliminated in 1996 (refer to
Section 1.3 of this Analysis).
5.5. Fixed maturity investments
The table below details the composition of the fixed maturity portfolio.
At December 31
(dollars in millions) 1996 % 1995 % 1994 %
------------------------------------
Corporate and other
investment-grade bonds $4,673 58 $5,361 59 $5,037 56
Mortgage-backed securities 1,464 18 1,739 19 1,921 22
Asset-backed securities 731 9 999 11 942 11
U.S. Government bonds 334 4 380 4 287 3
High-yield bonds 548 7 599 7 616 7
Tax-exempt bonds 316 4 40 -- 121 1
------------------------------------
Total fixed maturities at
amortized cost 8,066 100 9,118 100 8,924 100
Total market value of
fixed maturities 8,164 9,458 8,365
------------------------------------
Net unrealized gains (losses) $ 98 $ 340 $ (559)
------------------------------------
Percent market-to-
amortized cost 101 104 94
------------------------------------
Fluctuating interest rates, which result in inversely changing bond prices, were
responsible for the volatility of the overall market-to-amortized cost ratio
between years.
While subject to prepayment risk, credit risk related to USF&G's mortgage-backed
securities portfolio at December 31, 1996 is believed to be minimal since
99 percent of such securities had AAA ratings or were collateralized by
obligations of the U.S. Government or its agencies. The net proceeds from sales,
maturities and repayments in 1996 were predominately reinvested in corporate
investment-grade and tax-exempt bonds. In 1995 and 1994, proceeds were generally
reinvested into corporate investment-grade bonds. Investment-grade bonds,
including debt obligations of the U.S. Government and its agencies, comprised
93 percent of the portfolio at December 31, 1996, 1995 and 1994. The following
table shows the credit quality of the long-term fixed maturity portfolio at
December 31, 1996.
Percent
Market-to-
Amortized Market Amortized
(dollars in millions) Cost Percent Value Cost
------------------------------------------
U.S. Government and U.S.
Government Agencies $1,767 22% $1,791 101%
AAA 1,280 16 1,295 101
AA 1,344 17 1,346 100
A 2,121 26 2,146 101
BBB 1,006 12 1,025 102
BB 288 4 295 103
B 258 3 264 102
CCC and lower 2 -- 2 100
------------------------------------------
Total $8,066 100% $8,164 101%
------------------------------------------
Information on credit quality is based upon the higher of the rating assigned to
each issue by either Standard & Poor's or Moody's. Where neither Standard &
Poor's nor Moody's has assigned a rating to a particular fixed maturity issue,
classification is based on (1) ratings available from other recognized rating
services; (2) ratings assigned by the NAIC; or (3) an internal assessment of the
characteristics of the individual security, if no other rating is available.
High-yield investments generally involve a greater degree of risk than
investment-grade securities. Expected returns should, however, compensate for
the added risk. USF&G attempts to minimize the risks associated with high-yield
investments by limiting the exposure to any one issuer and by closely monitoring
the creditworthiness of such issuers. At December 31, 1996, USF&G's five largest
investments in high-yield bonds totaled $64 million in amortized cost and had a
market value of $65 million. USF&G's largest single high-yield bond exposure
represented five percent of the high-yield portfolio and less than one percent
of the total fixed maturity portfolio.
5.6. Real estate
The table below shows the components of USF&G's real estate portfolio.
At December 31
(in millions) 1996 1995 1994
--------------------------
Mortgage loans $406 $254 $ 349
Equity real estate 554 653 662
--------------------------
Total $960 $907 $1,011
--------------------------
The increase in the real estate portfolio in 1996 was due to new mortgage loan
originations, offset in part by the sale of equity real estate. Mortgage loan
originations in 1996 consisted of fixed-rate loans collateralized by apartment
and office properties. The equity real estate sales in 1996 included two
operating properties and numerous nonincome-producing land investments. In 1995,
two equity real estate properties were sold, and certain fixed-rate,
multi-family mortgages were securitized and sold, resulting in the decrease in
the real estate portfolio in that year. These sales were consistent with USF&G's
continued strategy to reduce risk and increase yields in the real estate
portfolio by selling equity real estate when it is advantageous to do so and
reinvesting the proceeds in medium-term mortgage loans.
USF&G's real estate investment strategy emphasizes diversification by geographic
region and property type. The diversification of USF&G's mortgage loan and real
estate portfolio was as follows:
At December 31
1996 1995 1994
----------------------------
Geographic Region:
Pacific/Mountain 31% 33% 34%
Mid-Atlantic 23 21 17
Midwest 17 23 20
Southeast 16 12 16
Southwest 8 6 8
Northeast 5 5 5
----------------------------
Type of Property:
Office 46% 44% 37%
Apartments 24 15 24
Land 17 28 26
Retail/other 8 7 7
Industrial 5 6 6
----------------------------
At December 31, 1996, USF&G's five largest real estate investments had a book
value of $257 million. The largest single investment was a land development
project located in San Diego, with a book value of $88 million, or nine percent
of the total real estate portfolio. Mortgage loans and real estate are evaluated
on a quarterly basis as part of management's asset quality review process. This
process ensures that the financial and operating aspects of a property's
performance are closely monitored, analyzed and acted upon if appropriate.
Although USF&G anticipates that any sales of real estate will be in an orderly
fashion as and when market conditions permit, if USF&G was required to dispose
of a significant portion of its real estate in the near term, it is likely that
it would recover amounts substantially less than the related carrying values.
6. FINANCIAL CONDITION
6.1. Assets
USF&G's assets totaled $14.4 billion at December 31, 1996, compared with
$14.7 billion and $14.0 billion at the end of 1995 and 1994, respectively. The
fluctuations from year to year were due primarily to changes in the market value
of the fixed maturity investments classified as available for sale (refer to
Section 5.4 of this Analysis). As part of the Coinsurance Contract, F&G Life
transferred $932 million of fixed maturity investments and other assets to the
coinsurer, and recorded a $964 million reinsurance receivable. As of December
31, 1996, surrender activity under the Coinsurance Contract had reduced the
related reinsurance receivable balance to $772 million.
6.2. Debt
USF&G's corporate debt totaled $477 million at December 31, 1996, compared with
$591 million at December 31, 1995 and $586 million at December 31, 1994.
During 1996, $114 million was drawn against a credit facility to fund the
repayment of the 5 1/2% Swiss Franc Bonds which matured in January 1996, and to
repurchase approximately $39 million in outstanding Zero Coupon Convertible
Notes. The balance outstanding on the credit facility was paid down with excess
corporate cash and proceeds from the issuance of capital securities (refer to
Section 6.3 of this Analysis).
USF&G's real estate and other debt totaled $5 million at December 31, 1996,
compared with $16 million and $42 million at December 31, 1995 and 1994,
respectively. Real estate and other debt decreased $11 million in 1996 as a
result of the foreclosure on a previously consolidated real estate partnership
investment.
6.3. Shareholders' equity
USF&G's shareholders' equity totaled $2.0 billion at December 31, 1996 and 1995,
and $1.4 billion at December 31, 1994. Net income and the elimination of the
minimum pension liability increased equity in 1996, but were offset by declines
in net unrealized gains on fixed maturity investments and a reduction in paid-in
capital due to the repurchase of 8.4 million shares of common stock. The
increase in shareholders' equity from 1994 to 1995 resulted from significant
unrealized gains as well as net income of $209 million. The need to record a
minimum pension liability and changes in unrealized gains and losses are
significantly affected by interest rate movements, which are beyond the control
of management. Consequently, no assurance can be given that the minimum pension
liability will not be reestablished in the near future, or that unrealized
losses will not result in significant reductions of shareholders' equity.
In January 1994, USF&G filed a shelf registration statement with the Securities
and Exchange Commission. As of the time this registration statement went into
effect, USF&G had available $647 million of unissued debt, preferred stock,
common stock and warrants to purchase debt and stock. In 1994, this registration
statement was reduced by $275 million for the issuances of the Zero Coupon
Convertible Notes and the 8 3/8% Senior Notes. The registration was further
reduced in 1995 by $150 million and $80 million for the issuances of the
7% Senior Notes and the 7 1/8% Senior Notes, respectively, leaving $142 million
of unissued debt, preferred stock, common stock and warrants available at
December 31, 1995. No debt or stock was issued under this registration in 1996.
In December 1995, USF&G Corporation, along with two business trusts in which
USF&G has a controlling interest (the "Trusts"), filed a shelf registration
statement which permits the issuance by the Trusts of up to $210 million of
capital securities. In January 1997, $100 million of capital securities were
issued under the shelf registration, with the proceeds used to redeem
approximately 50 percent of the outstanding shares of USF&G's $4.10 Series A
Convertible Exchangeable Preferred Stock. In December 1996, $100 million of
capital securities were issued in a private placement transaction, the proceeds
from which were used to pay down the balance on the credit facility.
During 1996 and 1995, USF&G called for redemption 233,550 shares and 832,650
shares, respectively, of its $10.25 Series B Cumulative Convertible Preferred
Stock ("Series B Preferred Stock"). Additionally, holders of 20,000 shares and
189,800 shares of Series B Preferred Stock voluntarily converted those shares
into common stock in 1996 and 1995, respectively. Another 24,000 shares of
Series B Preferred Stock were redeemed for cash in 1996. In total, USF&G issued
10.6 million shares of common stock in 1996 and 1995 related to the conversion
of the Series B Preferred Stock. During 1995 and 1994, USF&G issued 15.4 million
shares of common stock as a result of the redemption of all of its outstanding
$5.00 Series C Cumulative Convertible Preferred Stock ("Series C Preferred
Stock"). As a result of these transactions, over $27 million of dividends
related to the Series B and Series C Preferred Stock (net of expected dividends
on shares of common stock issued on conversion) have been eliminated over the
course of the last three years.
7. LIQUIDITY
Liquidity is a measure of an entity's ability to secure enough cash to meet its
contractual obligations and operating needs. USF&G requires cash primarily to
pay policyholders' claims and benefits, debt and dividend obligations, and
operating expenses. USF&G's sources of cash include cash flow from operations,
credit facilities, marketable securities and sales of other assets. Management
believes that internal and external sources of cash will continue to exceed
USF&G's short-term and long-term operating needs.
7.1. Cash flow
USF&G had cash flow from operating activities of $330 million for the year ended
December 31, 1996 and $399 million and $140 million for the years ended December
31, 1995 and 1994, respectively. The decline of cash flows from operating
activities for 1996 compared with 1995 was due primarily to an $82 million
decrease in net reinsurance activity due to ceding of Discover Re's increased
captive business, and a $36 million decline in net investment income collected
due to the reduced asset base (refer to Section 5.2 of this Analysis). Direct
losses, loss expenses and policy benefits paid increased in 1996 due to the
unusually high level of catastrophe losses (refer to Section 3.1 of this
Analysis). Offsetting these declines in cash flow from operations was an
increase of $105 million in direct premiums collected. In addition, deposits and
withdrawals of universal life and investment contracts, such as annuities, which
for GAAP reporting purposes are considered financing activities, had net cash
outflows of $97 million in 1996, $349 million in 1995 and $418 million in 1994.
These net cash outflows related primarily to SPDA surrender activity and
decreased in 1996 as a result of the Coinsurance Contract. Cash flows are
expected to continue to benefit in the future from the Coinsurance Contract,
which significantly reduced F&G Life's exposure to cash outflows for surrender
activity.
7.2. Credit facilities
For general corporate purposes, USF&G maintained a committed, standby credit
facility with a group of foreign and domestic banks totaling $250 million at
December 31, 1996. This facility permits either borrowing of funds or letter of
credit issuances, and will expire in 2001. In addition, at December 31, 1996,
USF&G maintained a $150 million multi-currency credit facility. There were no
borrowings against these facilities at December 31, 1996. The credit agreement
contains restrictive covenants pertaining to indebtedness, tangible net worth,
liens and other matters. USF&G was in compliance with the covenants contained in
the agreement at December 31, 1996.
8. LEGAL CONTINGENCIES AND REGULATION
USF&G's insurance subsidiaries are routinely engaged in litigation in the normal
course of their businesses, including defending claims for punitive damages. As
insurers, they defend third-party claims brought against their insureds, as well
as defend themselves against first-party and coverage claims. In addition to
such litigation, USF&G Corporation and its subsidiaries are subject to other
litigation and claims in the ordinary course of their businesses. Additional
information on certain other litigation contingencies may be found in Note 14,
"Legal Contingencies", to the consolidated financial statements. In the opinion
of management, such contingencies are not expected to have a material effect on
USF&G's consolidated financial position, although it is possible that the
results of operations in a particular quarter or annual period would be
materially affected by an unfavorable outcome.
USF&G's insurance subsidiaries are also subject to extensive regulatory
oversight in the jurisdictions where they do business. This regulatory
structure, which generally operates through state insurance departments,
involves the licensing of insurance companies and agents, limitations on the
nature and amount of certain investments, restrictions on the amount of single
insured risks, approval of policy forms and rates, setting of capital and
deposit requirements, limitations on dividends, limitations on the ability to
withdraw from certain lines of business such as personal lines and workers'
compensation, and other matters. State insurance departments routinely conduct
financial and market conduct examinations and assess fines for violations of the
myriad state regulations affecting the conduct of the insurance business. From
time to time, the insurance regulatory framework has been the subject of
increased scrutiny. At any one time there may be numerous initiatives within
state legislatures or state insurance departments to alter and, in many cases,
increase state authority to regulate insurance companies and their businesses.
It is not possible to predict the future impact of increasing regulation on
USF&G's operations.
8.1. Involuntary market plans
Most states require insurers to provide coverage for less desirable risks
through participation in mandatory programs. USF&G's participation in assigned
risk pools and similar plans, mandated now or in the future, creates and is
expected to create downward pressure on earnings. Underwriting losses from
involuntary market plans totaled $4 million in 1996, compared with $13 million
and $21 million in 1995 and 1994, respectively.
8.2. Withdrawal from business lines
Some states have adopted legislation or regulations restricting or otherwise
limiting an insurer's ability to withdraw from certain lines of business. Such
restrictions are most often found in personal lines and workers' compensation
insurance. They include prohibitions on mid-term cancellations and limiting
reasons based upon which an insurer may nonrenew policies, requirements for
amendments to underwriting standards, rates and policy forms to be approved by
state regulators, specifications of a maximum percentage of a book of business
which may be nonrenewed within the state within any twelve-month period, and
prohibitions on exiting a single line of business within a state (thus requiring
an insurer to either continue an unprofitable line or give up all lines of
business and withdraw from a state entirely). Such restrictions limit USF&G's
ability to manage its exposure to unprofitable lines and adversely affects
earnings to the extent USF&G is required to continue writing unprofitable
business.
8.3. Guaranty funds
Insurance guaranty fund laws have been adopted in most states to protect
policyholders in case of an insurer's insolvency. Insurers doing business in
those states can be assessed for certain obligations of insolvent companies to
policyholders and claimants. These assessments, under certain circumstances, can
be credited against future premium taxes. Net of such tax credits, USF&G
incurred $2 million of guaranty fund expense in 1996 and $5 million and
$9 million in 1995 and 1994, respectively.
State laws limit the amount of annual assessments which are based on percentages
(generally two percent) of assessable annual premiums in the year of insolvency.
The ultimate amount of these assessments cannot be reasonably estimated, but are
not expected to have a material adverse effect on USF&G's financial position.
8.4. NAIC proposals
The NAIC has been developing several model laws and regulations, including a
Model Investment Law and amendments to the Model Holding Company System
Regulatory Act (the "Holding Act Amendments"). The Model Investment Law defines
the investments which are permissible for property/casualty and life insurers to
hold, and the Holding Act Amendments address the types of activities in which
subsidiaries and affiliates may engage. The NAIC adopted these model laws in
1996, but the laws have not been enacted for insurance companies domiciled in
the State of Maryland, such as USF&G Company and F&G Life. Even if enacted in
Maryland or other states in which USF&G's subsidiaries are domiciled, it is
expected that these laws will neither significantly change USF&G's investment
strategies nor have any material adverse effect on USF&G's liquidity or
financial position.
8.5. Superfund
Superfund is scheduled to be reauthorized in 1997. Insurance companies, other
businesses, environmental groups and municipalities are advocating a variety of
reform proposals to revise the cleanup and liability provisions of Superfund. No
reliable prediction can be made as to the ultimate outcome of the legislative
deliberations regarding the reauthorization of Superfund or the effect such
revisions may have on USF&G.
8.6. Insurance regulatory information system
The NAIC's Insurance Regulatory Information System ("IRIS") ratios are intended
to assist state insurance departments in their review of the financial condition
of insurance companies operating within their respective states. IRIS specifies
eleven industry ratios and establishes a "usual range" for each ratio.
Significant departure from a number of ratios may lead to inquiries from state
insurance regulators. As of December 31, 1996, USF&G was within or favorably
exceeded the "usual range" for all of the IRIS ratios.
8.7. Taxation of deferred annuities
From time to time, various proposals have been considered by Congress, the
Office of Management and Budget and the Department of the Treasury to include
within an individual annuitant's current taxable income all or a portion of the
interest payments which accrue on certain deferred annuity products, including
some deferred annuity products sold by F&G Life. Currently, such interest is not
taxed until the time of distribution. All such proposals have focused on
deferred annuities and have not included annuities issued in connection with
structured settlements of claims or on tax sheltered annuities. No reliable
prediction can be made at this time as to the outcome of any such proposals or
the effect such proposals may have on F&G Life.
8.8. Glass-Steagall reform
Congress and the Administration are considering various proposals to restructure
the U.S. financial services industry through repeal or modification of the
Glass-Steagall Act and the Bank Holding Company Act. The proposals would, to
varying degrees, allow banks to affiliate with other financial services
providers, including insurance companies. It is unclear whether or to what
extent any final legislation would address bank insurance authority, and no
reliable prediction can be made at this time as to the ultimate outcome of the
legislative deliberations regarding restructuring of the financial services
industry or the effect such legislation may have on USF&G.
8.9. Natural disaster protection
From time to time, various proposals have been considered by Congress and the
Administration to provide a program of natural disaster protection that would
include primary insurance and reinsurance for the perils of hurricane,
earthquake, volcanic eruption and tsunami. During the current session of
Congress, a legislative proposal has been introduced to create a private
not-for-profit corporation that would serve as the primary insurer of
residential property for both the earthquake and hurricane perils. This private
not-for-profit corporation also would serve as a reinsurer of commercial risks
for earthquake and hurricane perils and as a reinsurer of residential property
for natural catastrophe perils not covered under the primary program (e.g.,
volcano, tsunami). In addition, legislation has been introduced to establish a
federal program to provide reinsurance for state residential disaster insurance
programs. No reliable prediction can be made at this time as to the outcome of
any of these proposals or the effect they may have on USF&G.
9. GLOSSARY OF TERMS
Account value: Deferred annuity cash value available to policyholders before the
assessment of surrender charges.
Alternative risk transfer ("ART"): A form of insurance through which a company
self-insures the predictable frequency portion of its own losses and purchases
insurance for the less frequent, high severity losses that could have a major
financial impact on the company.
Captive insurer: A closely-held insurance company owned by one or more
organizations whose purpose is to insure some or all of the risks of
shareholders or affiliated organizations.
Catastrophe losses: Property/casualty insurance claim losses resulting from a
sudden calamitous event, such as a severe storm, are categorized as
"catastrophes" when they meet certain severity and other criteria determined by
a national organization.
Deferred annuity: A life insurance product purchased with either a lump-sum or
flexible premium, which accumulates interest over a fixed period or over an
individual's lifetime, with payments deferred to a designated future time.
Expense ratio: The ratio of underwriting expenses to net premiums written, if
determined in accordance with statutory accounting practices ("SAP"), or the
ratio of underwriting expenses (adjusted by deferred policy acquisition costs)
to earned premiums, if determined in accordance with GAAP.
Facultative reinsurance: The reinsurance of part or all of the insurance
provided by a single policy. Each cession is negotiated individually. The word
"facultative" connotes that both the primary insurer and the reinsurer have the
faculty or option of accepting or rejecting the individual submission (as
distinguished from the obligation to cede and accept, to which the parties agree
in treaty reinsurance).
Finite risk reinsurance: Reinsurance arrangements providing coverage at lower
margins than traditional risk reinsurance in return for a lower probability of
loss to the reinsurer.
Gross program premium: Total ART premium managed, whether actually written by a
USF&G affiliate or a nonaffiliate captive insurer.
High-yield bonds: Fixed maturity investments with a credit rating below the
equivalent of Standard & Poor's "BBB-". In addition, nonrated fixed maturities
that, in the judgment of USF&G, have credit characteristics similar to those of
a fixed maturity rated below BBB- are considered high-yield bonds.
Immediate annuity: A life insurance product which provides a fixed stream of
payments over a fixed period of time or over an individual's lifetime, with
payments beginning at the inception of the contract.
Investment spreads: The difference between the interest rates earned on invested
assets and the interest rates credited to policyholders.
Loss ratio: The ratio of incurred losses and loss expenses to earned premiums,
determined in accordance with SAP or GAAP.
Nonstandard auto: Automobile insurance for individuals who are unable to obtain
preferred or standard insurance coverage due to their inability to meet certain
standard underwriting criteria, based on factors such as age, type of
automobile, residence location and driving record.
Policyholders' surplus: The net assets of an insurer as reported to regulatory
agencies based on accounting practices prescribed or permitted by the NAIC and
the state of domicile.
Premiums earned: The portion of premiums written applicable to the expired
period of policies.
Premiums written: Premiums retained by an insurer, after the assumption and
cession of reinsurance.
Reinsurance: For a consideration, an assuming insurer agrees to indemnify a
ceding insurer against all or part of the loss the latter may sustain under the
policy or policies it has issued. The legal rights of the insured are not
affected by the transaction, and the ceding insurer remains liable to the
insured for payment of policy benefits.
Structured settlement annuity: An immediate annuity sold to property/casualty
companies to fund the settlement of insurance claims.
Underwriting results: Property/casualty pretax operating results excluding
investment results, policyholders' dividends and noninsurance activities;
generally, premiums earned less losses and loss expenses incurred and
"underwriting" expenses incurred. It is not unusual for property/casualty
companies to have underwriting losses that are offset by investment income.
Universal life: A life insurance product which provides a death benefit for the
life of the insured and accumulates cash values to which interest is credited.
<PAGE>
<TABLE>
<CAPTION>
USF&G CORPORATION Eleven-Year Summary of Selected Financial Information
<S> <C> <C> <C> <C>
(dollars in millions
except per share data) 1996 1995 1994 1993
-------------------------------------------------------
Consolidated Results
Premiums earned $ 2,731 $ 2,666 $ 2,508 $ 2,521
Total revenues 3,498 3,459 3,310 3,323
Income (loss) from
continuing operations
before cumulative
effect of adopting new
accounting standards 261 209 237 130
Income (loss) from
discontinued operations -- -- -- --
Cumulative effect of adopting
new accounting standards -- -- -- 38
Net income (loss) 261 209 237 168
-------------------------------------------------------
Per Share Results
Income (loss) from continuing
operations before cumulative
effect of adopting new
accounting standards $ 2.05 $ 1.63 $ 2.00 $ .90
Income (loss) from
discontinued operations -- -- -- --
Cumulative effect of adopting
new accounting standards -- -- -- .42
Net income (loss) 2.05 1.63 2.00 1.32
Book value 15.48 14.68 9.96 11.33
-------------------------------------------------------
Investment Results
Net investment income $ 705 $ 733 $ 749 $ 753
Realized gains (losses) 44 7 5 6
Change in unrealized
gains (losses) (209) 418 (338) 220
-------------------------------------------------------
Financial Position
Assets $14,407 $14,651 $ 13,980 $14,481
Investments 10,076 11,107 10,561 11,474
Corporate debt 477 591 586 574
Real estate and other debt 5 16 42 53
Shareholders' equity 1,969 1,984 1,441 1,556
-------------------------------------------------------
Common Stock
Market high $21 3/4 $ 19 1/2 $ 16 1/8 $19 5/8
Market low 14 1/4 13 3/8 11 11/16 11 1/8
Market close 20 7/8 16 7/8 13 5/8 14 3/4
Cash dividends declared .20 .20 .20 .20
Common shares outstanding 114,240,489 119,606,095 104,810,794 91,418,372
-------------------------------------------------------
Property/Casualty Insurance
Premiums earned $ 2,586 $ 2,492 $ 2,356 $ 2,392
Net income (loss) 149 175 498 285
Statutory premiums written 2,639 2,563 2,389 2,502
-------------------------------------------------------
Statutory loss ratio 72.1 72.4 73.1 75.3
Statutory expense ratio 33.5 33.4 34.8 33.5
Statutory combined ratio 105.6 105.8 107.9 108.8
-------------------------------------------------------
Life Insurance
Sales $ 427 $ 348 $ 286 $ 205
Premium income 145 174 152 129
Net income (loss) (5) 19 12 10
-------------------------------------------------------
Noninsurance Operations
Revenues $ 74 $ 63 $ 90 $ 5
Net income (loss) 117 15 (273) (126)
-------------------------------------------------------
<PAGE>
<C> <C> <C> <C> <C> <C> <C>
1992 1991 1990 1989 1988 1987 1986
- - ----------------------------------------------------------------------------------------------
$ 2,683 $ 3,213 $ 3,535 $ 3,713 $ 3,801 $ 3,888 $ 3,622
3,712 4,202 4,191 4,653 4,559 4,500 4,314
36 (145) (433) 148 251 263 276
(7) (32) (136) (31) (20) 2 (2)
-- -- -- -- -- -- --
29 (177) (569) 119 247 279 295
- - ----------------------------------------------------------------------------------------------
$ (.14) $ (2.06) $ (5.10) $ 1.52 $ 2.87 $ 3.36 $ 4.04
(.08) (.36) (1.55) (.35) (.24) .03 (.03)
-- -- -- -- -- -- --
(.22) (2.42) (6.65) 1.18 2.82 3.57 4.32
8.66 9.30 11.65 20.61 22.29 19.29 19.90
- - ----------------------------------------------------------------------------------------------
$ 820 $ 880 $ 930 $ 912 $ 796 $ 699 $ 619
148 38 (354) (36) (92) (133) 53
(18) 37 (30) 32 185 (282) (105)
- - ----------------------------------------------------------------------------------------------
$13,242 $14,555 $13,951 $13,576 $12,342 $10,171 $ 8,943
11,417 12,216 11,259 10,911 9,787 7,901 6,831
574 617 659 543 448 407 348
54 73 129 92 44 24 5
1,300 1,346 1,277 2,011 2,058 1,727 1,579
- - ----------------------------------------------------------------------------------------------
$ 15 $12 1/2 $30 3/8 $ 34 $34 3/8 $48 3/4 $46 3/4
7 1/8 5 5/8 7 28 1/4 28 1/2 26 1/4 36 1/4
12 3/8 7 1/4 7 1/2 29 28 1/2 28 3/8 39 3/4
.20 .20 2.44 2.80 2.64 2.48 2.32
89,985,083 88,566,897 88,157,862 87,864,146 83,320,477 79,193,184 69,319,067
- - ----------------------------------------------------------------------------------------------
$ 2,579 $ 3,044 $ 3,349 $ 3,548 $ 3,623 $ 3,754 $3,542
194 (41) (192) 200 318 331 309
2,475 3,064 3,651 3,717 3,903 3,854 3,701
- - ----------------------------------------------------------------------------------------------
81.8 84.0 81.8 76.4 73.0 73.2 79.1
34.8 33.1 32.9 32.8 31.2 30.1 29.1
116.6 117.1 114.7 109.2 104.2 103.3 108.2
- - ----------------------------------------------------------------------------------------------
$ 155 $ 280 $ 1,054 $ 960 $ 1,077 $ 278 $ 83
104 169 186 165 178 133 79
(5) 31 (16) 31 14 37 20
- - ----------------------------------------------------------------------------------------------
$ 17 $ 38 $ 22 $ 84 $ 114 $ 112 $ 8
(160) (167) (361) (112) (85) (88) (86)
- - ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
USF&G CORPORATION Consolidated Statement of Operations
Years Ended December 31
(dollars in millions except per share data) 1996 1995 1994
--------------------------
Revenues
Premiums earned $2,731 $2,666 $2,508
Net investment income 705 733 749
Other 18 53 48
--------------------------
Revenues before net realized gains 3,454 3,452 3,305
Net realized gains on investments 44 7 5
--------------------------
Total revenues 3,498 3,459 3,310
--------------------------
Expenses
Losses, loss expenses and policy benefits 2,181 2,178 2,132
Underwriting, acquisition and operating expenses 1,044 1,048 1,001
Interest expense 39 44 37
Branch reorganization severance 17 -- --
Facilities exit costs/(sublease income) (42) (6) 183
--------------------------
Total expenses 3,239 3,264 3,353
--------------------------
Income (loss) from operations before income taxes 259 195 (43)
Provision for income taxes (benefit) (2) (14) (280)
--------------------------
Net income $ 261 $ 209 $ 237
--------------------------
Preferred stock dividend requirements 20 28 46
--------------------------
Net income available to common stock $ 241 $ 181 $ 191
--------------------------
Primary earnings per common share $ 2.05 $ 1.63 $ 2.00
Fully diluted earnings per common share 1.93 1.53 1.77
--------------------------
Weighted-average common shares outstanding (in 000s):
Primary 117,674 111,474 95,797
Fully diluted 129,490 130,186 127,808
--------------------------
See Notes to Consolidated Financial Statements.
<PAGE>
USF&G CORPORATION Consolidated Statement of Financial Position
At December 31
(dollars in millions except per share data) 1996 1995 1994
--------------------------
Assets
Investments:
Fixed maturities:
Held to maturity, at amortized cost
(market, 1994, $4,284) $ -- $ -- $ 4,659
Available for sale, at market
(cost, 1996, $8,066;1995, $9,118;
1994, $4,265) 8,164 9,458 4,081
Common and preferred stocks, at market
(cost, 1996, $16; 1995, $70; 1994, $79) 16 65 72
Short-term investments 535 288 450
Mortgage loans 406 254 349
Real estate 554 653 662
Other invested assets 401 389 288
--------------------------
Total investments 10,076 11,107 10,561
--------------------------
Cash 73 119 69
Accounts, notes and other receivables 763 795 741
Reinsurance receivables 1,576 604 554
Servicing carrier receivables 661 699 706
Deferred policy acquisition costs 456 434 504
Other assets 802 893 845
--------------------------
Total assets $14,407 $14,651 $13,980
--------------------------
Liabilities
Unpaid losses, loss expenses and policy benefits $ 9,584 $ 9,816 $ 9,962
Unearned premiums 1,113 1,055 968
Corporate debt 477 591 586
Real estate and other debt 5 16 42
Other liabilities 1,159 1,189 981
--------------------------
Total liabilities 12,338 12,667 12,539
--------------------------
USF&G-obligated mandatorily redeemable capital
securities of subsidiary trust holding solely
junior subordinated deferrable interest
debentures of USF&G 100 -- --
--------------------------
Shareholders' Equity
Preferred stock, par value $50.00 (12,000,000
shares authorized; shares issued, 1996,
3,999,910; 1995, 4,277,460; 1994, 6,627,896) 200 213 331
Common stock, par value $2.50 (240,000,000 shares
authorized; shares issued, 1996, 114,240,489;
1995, 119,606,095; 1994, 104,810,794) 286 299 262
Paid-in capital 1,091 1,188 1,104
Net unrealized gains (losses) on investments
and foreign currency 62 271 (147)
Minimum pension liability -- (100) (63)
Retained earnings (deficit) 330 113 (46)
--------------------------
Total shareholders' equity 1,969 1,984 1,441
--------------------------
Total liabilities, capital securities
and shareholders' equity $14,407 $14,651 $13,980
--------------------------
See Notes to Consolidated Financial Statements.
<PAGE>
USF&G CORPORATION Consolidated Statement of Cash Flows
Years Ended December 31
(in millions) 1996 1995 1994
---------------------------
Operating Activities
Direct premiums collected $ 2,183 $ 2,078 $ 2,029
Net investment income collected 707 743 750
Direct losses, loss expenses and
policy benefits paid (1,751) (1,725) (1,884)
Net reinsurance activity (13) 69 22
Underwriting and operating expenses paid (769) (760) (789)
Interest paid (37) (37) (31)
Income taxes paid (5) (5) (12)
Other items, net 15 36 55
--------------------------
Net cash provided from operating activities 330 399 140
--------------------------
Investing Activities
Net (purchases), sales and maturities
of short-term investments (249) 148 (115)
Purchases of fixed maturities held to maturity -- -- (400)
Sales of fixed maturities held to maturity -- 21 65
Maturities/repayments of fixed maturities
held to maturity -- 110 348
Purchases of fixed maturities available for sale (1,189) (1,123) (351)
Sales of fixed maturities available for sale 588 489 345
Maturities/repayments of fixed maturities
available for sale 702 443 480
Purchases of other investments (228) (302) (434)
Sales, maturities and repayments of
other investments 412 332 482
Purchase of subsidiary (57) -- --
Purchases of property and equipment (59) (32) (33)
Sales of property and equipment 14 2 4
-------------------------
Net cash (used in) provided from investing activities (66) 88 391
-------------------------
Financing Activities
Deposits for universal life and
investment contracts 438 310 246
Withdrawals of universal life and
investment contracts (535) (659) (664)
Net repayments of short-term borrowings -- (227) (167)
Long-term borrowings -- 228 270
Repayments of long-term borrowings (125) (42) (124)
Issuance of capital securities 98 -- --
Issuances of common stock 11 6 38
Repurchases of common stock (150) -- --
Redemptions of preferred stock (2) -- (13)
Cash dividends paid to shareholders (45) (53) (66)
-------------------------
Net cash used in financing activities (310) (437) (480)
-------------------------
(Decrease) increase in cash (46) 50 51
Cash at beginning of year 119 69 18
-------------------------
Cash at end of year $ 73 $ 119 $ 69
-------------------------
Noncash Transactions
Coinsurance of broker SPDA block:
Transfer of investments and other assets in
exchange for reinsurance receivables $ 964 $ -- $ --
Surrender activity (192) -- --
-------------------------
See supplemental cash flow information at Note 1.13.
See Notes to Consolidated Financial Statements.
<PAGE>
USF&G CORPORATION Consolidated Statement of Shareholder's Equity
Years Ended December 31
(in millions except per share data) 1996 1995 1994
--------------------------
Preferred Stock
Balance at beginning of year $ 213 $ 331 $ 455
Par value of Series B shares converted
to common shares (12) (51) --
Par value of Series C shares converted
to common shares -- (66) (111)
Par value of shares redeemed (1) (1) (13)
--------------------------
Balance at end of year 200 213 331
--------------------------
Common Stock
Balance at beginning of year 299 262 228
Par value of shares issued for conversion
of Series B shares 5 21 --
Par value of shares issued for conversion
of Series C shares -- 14 23
Par value of other shares issued 3 2 11
Par value of shares repurchased (21) -- --
--------------------------
Balance at end of year 286 299 262
--------------------------
Paid-In Capital
Balance at beginning of year 1,188 1,104 986
Excess of proceeds over par value of
Series B shares converted 7 29 --
Excess of proceeds over par value of
Series C shares converted -- 50 86
Excess of proceeds over par value of
other shares issued 8 5 32
Excess of cost over par value of shares
repurchased (129) -- --
Accrued stock-based compensation 15 -- --
Tax benefit from exercise of stock options 2 -- --
--------------------------
Balance at end of year 1,091 1,188 1,104
--------------------------
Net Unrealized Gains (Losses) on Investments
and Foreign Currency
Balance at beginning of year 271 (147) 191
Change in unrealized gains (losses) (209) 418 (338)
--------------------------
Balance at end of year 62 271 (147)
--------------------------
Minimum Pension Liability
Balance at beginning of year (100) (63) (85)
Change in unfunded accumulated benefits 100 (37) 22
--------------------------
Balance at end of year -- (100) (63)
--------------------------
Retained Earnings (Deficit)
Balance at beginning of year 113 (46) (219)
Net income 261 209 237
Common stock dividends declared
(per share, 1996, 1995 and 1994, $.20) (24) (22) (18)
Preferred stock dividends declared
(per share, 1996, Series A, $4.10, Series B,
$7.69; 1995, Series A, $4.10, Series B, $10.25;
1994, Series A, $4.10, Series B, $10.25,
Series C, $5.00) (20) (28) (46)
--------------------------
Balance at end of year 330 113 (46)
--------------------------
Total shareholders' equity $1,969 $1,984 $1,441
--------------------------
See Notes to Consolidated Financial Statements.
<PAGE>
USF&G CORPORATION Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.1. Basis of presentation
The consolidated financial statements are prepared in accordance with generally
accepted accounting principles ("GAAP"). These statements include the accounts
of USF&G Corporation and its subsidiaries (collectively, "USF&G" or "the
Corporation"). Intercompany transactions are eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the 1996
presentation. Refer to Note 1.12 regarding restatements for mergers consummated
in the second quarter of 1995. The preparation of the consolidated financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from these
estimates.
USF&G is primarily engaged in the business of insurance. Property/casualty
insurance, which accounted for 88 percent of revenues before net realized gains
in 1996, is written primarily by United States Fidelity and Guaranty Company
("USF&G Company") and is sold primarily through independent agents and brokers
supported by USF&G Company's underwriting, marketing, administrative and claim
services offices located throughout the United States. Life insurance and
annuities, which accounted for 12 percent of revenues before net realized gains
in 1996, are written primarily by Fidelity and Guaranty Life Insurance Company
("F&G Life"), and are sold throughout the United States through independent
agents, managing general agents and specialty insurance brokerage firms.
Noninsurance operations are composed primarily of the parent company and asset
management services. Additional information on the Corporation's business
segments is included in Note 16, "Information on Business Segments".
1.2. New accounting standards
Effective January 1, 1996, USF&G adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of". SFAS No. 121 requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. The standard also
requires that impairments in the value of real estate investments be recorded as
direct reductions in the carrying value of those investments. USF&G's prior
practice had been to establish valuation allowances for impairment to specific
investments where impairment is deemed other than temporary. The adoption of
SFAS No. 121 did not have a material effect on USF&G's financial statements
since existing valuation allowances were applied against the related impaired
investments reducing the cost basis of those investments.
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123, "Accounting for Stock-Based Compensation", which defines a fair value-
based method of accounting for stock options granted to employees. As allowed by
SFAS No. 123, USF&G has elected to continue applying Accounting Principals Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees", and related
interpretations in accounting for its employee stock options, and has provided
pro forma disclosures of the effects on net income and earnings per share had
the fair value method for recognizing compensation expense been adopted. (Refer
to Note 9.)
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", which
provides new accounting and reporting standards for transfers and servicing of
receivables and other financial assets and extinguishments of liabilities. The
standard is based on a financial components approach that focuses on whether an
entity controls the financial assets transferred in such transactions. As
issued, the standard is effective for transactions occurring after December 31,
1996, and is to be applied prospectively. In December 1996, the FASB issued SFAS
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125", which defers for one year both the criteria for determination of a
sale versus a secured borrowing for certain transactions, and new accounting
standards for assets transferred as collateral.
Once adopted, SFAS No. 125 will impact USF&G's accounting for participation in
securities lending programs as well as for assets pledged as collateral;
however, this impact will primarily be limited to classifications on the
Consolidated Statement of Financial Position. SFAS No. 125 could also affect
future financial statements to the extent USF&G enters into sales of financial
assets, extinguishments of liabilities or other applicable transactions.
1.3. Permitted statutory accounting practices
Reporting practices for insurance subsidiaries prescribed or permitted by state
regulatory authorities (statutory accounting practices) differ from GAAP.
Statutory amounts for USF&G's insurance operations follow.
(in millions) 1996 1995 1994
-------------------------
Statutory Net Income for the Years
Ended December 31:
Property/casualty insurance* $ 167 $ -- $ 173
Subsidiaries and affiliates** 8 -- --
Life insurance 27 15 30
------------------------
Statutory Surplus at December 31:
Property/casualty insurance* $1,374 $1,341 $1,621
Subsidiaries and affiliates** 243 176 155
Life insurance 213 300 326
-------------------------
*Includes USF&G Company and all subsidiaries required to be included in its
combined statutory statements. At December 31, 1994, that amount includes the
life insurance subsidiary (refer to Note 7.5).
**Includes those property/casualty subsidiaries and affiliates not included in
USF&G Company's combined statutory statements.
USF&G's primary insurance subsidiaries, USF&G Company and F&G Life, are
domiciled in the State of Maryland and prepare their statutory financial
statements in accordance with statutory accounting practices prescribed or
permitted by the Maryland Insurance Administration. Prescribed statutory
accounting practices include state laws, regulations and general administrative
rules issued by the State of Maryland as well as a variety of publications and
manuals of the National Association of Insurance Commissioners ("NAIC").
Permitted statutory accounting practices encompass all accounting practices not
so prescribed.
Property/Casualty Insurance: USF&G Company has received written approval from
the Maryland Insurance Administration to extend the required disposal period for
certain real property acquired as security for loans or other obligations. Under
the current Maryland Insurance Code, these assets are required to be disposed of
within five years from the date of acquisition. The Maryland Insurance
Administration extended this time period for certain properties up to no later
than December 31, 1997. In addition, USF&G Company has received written approval
to admit certain expenses prepaid to various governmental agencies. As of
December 31, 1996, 1995 and 1994, these permitted transactions increased
statutory surplus by $20 million, $35 million and $19 million, respectively,
over what it would have been had prescribed accounting practices been followed.
Life Insurance: In 1994, F&G Life received permission from the Maryland
Insurance Administration to reduce nonadmitted assets by the associated asset
valuation reserve subcomponent ending balance. There was no effect on statutory
surplus from electing this option at December 31, 1996 and 1995. As of December
31, 1994, this permitted accounting practice had the effect of increasing
statutory surplus by $15 million over what it would have been had prescribed
accounting practices been followed.
Since Maryland does not specifically prescribe by law or regulation reserves for
universal life ("UL") policies or group annuities, F&G Life follows reserving
practices which are permitted by the State of Maryland. For older generation
universal life policies, F&G Life holds the full account value as a reserve. For
newer generation UL policies, reserves are held based on a calculation according
to the NAIC UL Model Regulation, which has been adopted by many states. Many of
the group annuities sold by F&G Life are used to fund qualified pension and/or
profit sharing plans. For these annuities, the funds are not allocated to
individual participants, and the full account value is held as the reserve. For
group annuities where the funds and/or benefits are allocated to the individual
certificate holder, reserves are calculated according to laws prescribed for
individual annuities.
1.4. Investments
Fixed Maturities: USF&G classifies all of its fixed maturities as "available for
sale". These securities are held for an indefinite period of time and may be
sold in response to changes in interest rates and the yield curve, prepayment
risk, liquidity needs, or other factors. Fixed maturities classified as
"available for sale" are carried at market value, with unrealized gains and
losses recorded as a separate component of shareholders' equity. Unrealized
gains or losses on fixed maturities available for sale are offset by an
adjustment to life insurance deferred policy acquisition costs which is made on
a pro forma basis as if the unrealized gains or losses on those assets which
match certain life insurance liabilities were realized. Specific writedowns in
the carrying value of fixed maturities are recognized in income when an
impairment is deemed other than temporary.
At December 31, 1994, USF&G classified fixed maturities as "held to maturity" if
it had both the positive intent and ability to hold the securities until
maturity or near enough to maturity such that interest rate risk would be
substantially eliminated as a pricing factor. Fixed maturities held to maturity
were carried at amortized cost. Changes in the market values of these
investments were generally not recognized in the financial statements. On
December 4, 1995, USF&G reclassified all of its fixed maturities previously
classified as "held to maturity" to "available for sale", as permitted by
supplemental guidance issued by the FASB in November 1995.
Common and Preferred Stocks: Investments in common and preferred stocks where
USF&G has significant influence over the investees' operating and financial
policies are accounted for using the equity method and included in other
invested assets. Other investments in common and preferred stocks are carried at
market value with the resulting unrealized gains or losses reported directly in
shareholders' equity.
Securities Lending: USF&G participates in a securities lending program whereby
certain securities from its portfolio are loaned to other institutions for short
periods of time. A fee is paid to USF&G by the borrower. Collateral that exceeds
the market value of the loaned securities is maintained by the lending agent and
reported in USF&G's other invested assets with an offsetting liability reported
in other liabilities. Invested assets and other liabilities include
$128 million, $113 million and $6 million at December 31, 1996, 1995 and 1994,
respectively, related to securities lending collateral.
Mortgage Loans and Real Estate: Mortgage loans are carried at unpaid principal
balances. Real estate investments are reported at cost adjusted for equity
participation. Real estate acquired through foreclosure or deed-in-lieu of
foreclosure is initially recorded at estimated market value. Valuation
allowances are recognized for mortgage loans with deteriorations in collateral
performance which are deemed other than temporary, based on quarterly
evaluations. Impairments in the value of real estate investments are recorded as
direct reductions in the carrying value of those investments and are recognized
in income when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
Interest and Dividend Income: Interest on fixed maturity investments is recorded
as income when earned and is adjusted for any amortization of purchase premium
or discount. Dividends on equity securities are recorded as income on
ex-dividend dates.
Realized Gains and Losses: Realized gains and losses on the sale of investments
are determined based on specific cost. Realized losses are also recorded when an
investment's net realizable value is below cost and the decline is deemed other
than temporary.
1.5. Recognition of premium revenues
Property/Casualty Insurance: Property/casualty insurance premiums are earned
principally on a pro rata basis over the lives of the policies and include
accruals for ultimate premium revenue anticipated under auditable and
retrospectively rated policies. Unearned premiums represent the portion of
premiums written applicable to the unexpired terms of policies in force.
Unearned premiums also include estimated and unbilled premium adjustments.
Life Insurance: Premiums on life insurance policies with fixed and guaranteed
premiums and benefits, and premiums on annuities with significant life
contingencies are recognized when due. Premiums received on UL policies and
annuity contracts are not recorded as revenues; instead, they are recognized as
deposits. Policy charges and surrender penalties are recorded as revenues.
1.6. Unpaid losses, loss expenses and policy benefits
Property/Casualty Insurance: The liability for unpaid property/casualty
insurance losses and loss expenses is based on an evaluation of reported losses
and on estimates of incurred but unreported losses. The reserve liabilities are
determined using adjusters' individual case estimates and statistical
projections. The liability was reported net of estimated salvage and subrogation
recoverables of $99 million at December 31, 1996 and $116 million at December
31, 1995 and 1994. Adjustments to the liability based on subsequent developments
or other changes in the estimate are reflected in results of operations in the
period in which such adjustments become known.
Certain liabilities for unpaid losses and loss expenses related to workers'
compensation coverage are discounted to present value. The carrying amount of
such workers' compensation liabilities, net of reinsurance and net of discount,
was $1.3 billion, $1.5 billion and $1.6 billion at December 31, 1996, 1995 and
1994, respectively. Interest rates of up to four percent are used to discount
these liabilities.
Life Insurance: Ordinary life insurance reserves are computed under the net
level premium method using assumptions for future investment yields, mortality
and withdrawal rates. These assumptions reflect USF&G's experience, modified to
reflect anticipated trends, and provide for possible adverse deviation. Reserve
interest rate assumptions are graded and range from 2.5 percent to 6.0 percent.
Universal life and deferred annuity reserves are computed on the retrospective
deposit method, which produces reserves equal to the cash value of the
contracts. Such reserves are not reduced for charges that would be deducted from
the cash value of policies surrendered. Reserves on immediate annuities with
guaranteed payments are computed on the prospective deposit method, which
produces reserves equal to the present value of future benefit payments.
1.7. Deferred policy acquisition costs ("DPAC")
Acquisition costs, consisting of commissions, brokerage and other expenses
incurred at policy issuance, are generally deferred. Anticipated losses, loss
expenses, policy benefits and remaining costs of servicing the policies are
considered in determining the amount of costs to be deferred. Anticipated
investment income is considered in determining whether a premium deficiency
exists related to short-duration contracts, and in determining the
recoverability of DPAC for interest-sensitive life and annuity products.
Amortization of DPAC totaled $707 million, $714 million and $668 million for the
years ended December 31, 1996, 1995 and 1994, respectively, and was included in
underwriting, acquisition and operating expenses in the Consolidated Statement
of Operations.
Property/Casualty Insurance: Property/casualty insurance acquisition costs are
amortized over the period that related premiums are earned.
Life Insurance: Life insurance acquisition costs are amortized based on
assumptions consistent with those used for computing policy benefit reserves.
Acquisition costs on ordinary life business are amortized over their assumed
premium paying periods. Universal life and investment annuity acquisition costs
are amortized in proportion to the present value of their estimated gross
profits over the products' assumed durations, which are regularly evaluated and
adjusted as appropriate.
1.8. Foreign currency translation
The functional currency for USF&G's foreign operations is typically the
applicable local currency. For those subsidiaries in highly inflationary
economies, however, the functional currency is the reporting currency (the U.S.
dollar).
Local currency balance sheet accounts are translated to U.S. dollars using
exchange rates in effect at the balance sheet date, and revenue and expense
accounts maintained in the local currency are translated using the average
exchange rates prevailing during the year. The unrealized gains or losses, net
of applicable deferred income taxes, resulting from translation are included in
shareholders' equity.
In highly inflationary economies (e.g., Mexico), monetary assets and liabilities
are remeasured into U.S. dollars using exchange rates in effect at the balance
sheet date, whereas nonmonetary balances are remeasured using historical
exchange rates. Revenue and expense accounts are remeasured using the average
exchange rates prevailing during the year for monetary transactions and
historical exchange rates for nonmonetary transactions. Realized gains or losses
resulting from remeasurement are included in net income. Such gains and losses
may be reduced or effectively eliminated by certain financial instruments used
by USF&G to reduce its foreign exchange exposure.
1.9. Earnings per common share
Primary earnings per common share are computed by subtracting dividends on
preferred stock from net income and then dividing by the weighted-average common
shares outstanding during the period. Common stock equivalents are excluded from
the calculations because their effect is not material. Fully diluted earnings
per common share assume the conversion of all securities whose contingent
issuance would have a dilutive effect on earnings.
1.10. Branch reorganization severance
During 1996, USF&G's field structure was reorganized to accommodate the transfer
of certain policy and claim processing activities from the branch offices to
three new Centers for Agency Services and the Claim Reception Center (refer to
Section 2 of Management's Discussion and Analysis of Financial Condition and
Results of Operations). Severance costs covering approximately 700 employees
from throughout the branch organization totaled $17 million in 1996.
1.11. Facilities exit costs/sublease income
During 1994, USF&G committed to a plan to consolidate its home office operations
in Baltimore, Maryland, at its Mount Washington facility. The facilities exit
costs of $183 million in 1994 represented the present value of the rent and
other operating expenses to be incurred under the lease on the Corporation's
principal office building (the "Tower") from the time USF&G vacates the building
through the expiration of the lease in September 2009. Facilities exit costs
recorded in 1994 did not consider any potential future sublease income, as such
income was neither probable nor reasonably estimable at that time. To the extent
that additional or extended subleases are subsequently negotiated, the present
value of income to be received over the term of those subleases is recognizable
in the period such income becomes probable and reasonably estimable. Sublease
income of $54 million and $6 million was recognized under the facilities exit
plan in 1996 and 1995, respectively, as a result of USF&G's negotiation of
subleases with new and existing tenants. A credit of $12 million was also
recognized in 1996 related to reduced property tax assessments on the Tower.
Additionally, USF&G recognized approximately $24 million of facilities exit
costs in 1996, representing the present value of the rent and other operating
expenses estimated to be incurred over the life of certain leases as a result of
the downsizing or closure of numerous branch offices.
1.12. Business combinations
On December 17, 1996, USF&G acquired Afianzadora Insurgentes, S.A. de C.V.
("Afianzadora"), a surety bond company in Mexico, for $65 million. This
acquisition, which was accounted for as a purchase, resulted in goodwill of
$18 million, which will be amortized over 20 years on a straight-line basis. The
results of Afianzadora's operations for the period from December 17 through
December 31, 1996 have not been included in USF&G's Consolidated Statement of
Operations for 1996 as they were not material.
In April and May 1995, USF&G consummated mergers with Discover Re Managers, Inc.
("Discover Re"), and Victoria Financial Corporation ("Victoria Financial"),
respectively. In the transactions, USF&G exchanged 5.4 million shares of common
stock, worth approximately $79 million, for all of the outstanding equity of
Discover Re, and 3.8 million shares, worth approximately $59 million, for all of
the outstanding equity of Victoria Financial. Discover Re provides insurance,
reinsurance and related services to the alternative risk transfer market.
Victoria Financial is an insurance holding company which specializes in
nonstandard personal lines auto coverage. Both of these business combinations
were accounted for as poolings-of-interests. Accordingly, the financial
statements were restated to reflect the mergers with Discover Re and Victoria
Financial. Results for each of the separate enterprises from January 1, 1995 to
the respective consummation dates were as follows:
Premiums Total Net
(in millions) Earned Revenues Income
---------------------------
January 1 - March 31, 1995:
USF&G $598 $ 795 $49
Discover Re 6 8 1
---------------------------
January 1 - April 30, 1995:
USF&G* $769 $1,028 $63
Victoria Financial 13 16 --
---------------------------
*Excludes Discover Re.
A reconciliation of the previously separate enterprises to the restated
consolidated results of operations and total assets for the year ended
December 31, 1994 is disclosed in USF&G's 1994 Annual Report to Shareholders
(Restated) as filed with the Securities and Exchange Commission under
Form 10-K/A in November 1995.
1.13. Supplemental cash flow information
The Consolidated Statement of Cash Flows is presented using the "direct method",
which reports major classes of cash receipts and cash payments. A reconciliation
of net income to net cash provided from operating activities is as follows:
(in millions) 1996 1995 1994
-------------------------
Net income $ 261 $209 $ 237
Adjustments to reconcile net income
to net cash provided from
operating activities:
Net realized gains on investments (44) (7) (5)
Branch reorganization severance 17 -- --
Facilities exit costs/(sublease income) (42) (6) 183
Provision for income taxes (benefit) (2) (14) (280)
Change in insurance liabilities 66 294 72
Change in DPAC 38 (36) (60)
Change in receivables (167) (99) (24)
Change in other liabilities 56 73 (29)
Change in other assets 122 (31) 39
Change in other items, net 25 16 7
-------------------------
Net cash provided from operating
activities $ 330 $399 $ 140
-------------------------
NOTE 2 INVESTMENTS
2.1. Components of net investment income
(in millions) 1996 1995 1994
--------------------------
Fixed maturities $630 $664 $674
Common and preferred stocks 3 4 7
Short-term investments 20 23 14
Mortgage loans and real estate 48 46 58
Other investment income, net of interest
expense on funds held 19 13 9
--------------------------
Total investment income 720 750 762
Investment expenses (15) (17) (13)
--------------------------
Net investment income $705 $733 $749
--------------------------
2.2. Net realized gains on investments
(in millions) 1996 1995 1994
--------------------------
Net Gains (Losses) on Sales:
Fixed maturities $(12) $ 6 $ 3
Common and preferred stocks 79 4 --
Mortgage loans and real estate 17 2 7
Other 18 18 5
--------------------------
Net gains on sales 102 30 15
Impairments (58) (23) (10)
--------------------------
Net realized gains on investments $ 44 $ 7 $ 5
--------------------------
2.3. Gross unrealized gains (losses)
At December 31
(in millions) 1996 1995 1994
--------------------------
Unrealized Gains:
Fixed maturities available for sale $161 $ 375 $ 9
DPAC and policy benefits adjustment -- -- 33
Common and preferred stocks 2 3 2
Foreign currency and other 20 6 16
--------------------------
Gross unrealized gains 183 384 60
--------------------------
Unrealized Losses:
Fixed maturities available for sale (63) (35) (193)
DPAC and policy benefits adjustment (19) (73) --
Common and preferred stocks (2) (5) (8)
Foreign currency and other (4) -- (6)
--------------------------
Gross unrealized losses (88) (113) (207)
Deferred taxes on net unrealized gains (33) -- --
--------------------------
Net unrealized gains (losses) $ 62 $ 271 $(147)
--------------------------
2.4. Change in net unrealized gains (losses)
(in millions) 1996 1995 1994
--------------------------
Fixed maturities available for sale $(242) $ 524 $(407)
DPAC and policy benefits adjustment 54 (106) 63
Common and preferred stocks 2 4 3
Foreign currency and other 10 (4) 3
--------------------------
Total change in unrealized
gains (losses) before taxes (176) 418 (338)
Deferred taxes on net unrealized gains (33) -- --
--------------------------
Net change in unrealized gains (losses) $(209) $ 418 $(338)
--------------------------
2.5. Estimated market values of fixed maturity investments
There were no fixed maturities classified as "held to maturity" at December 31,
1996 and 1995 (refer to Note 2.6). The cost and market value of fixed maturities
held to maturity at December 31, 1994 were as follows:
Gross
Unrecognized Market
(in millions) Cost Gains Losses Value
----------------------------------
U.S. Government bonds $ 14 $-- $ (2) $ 12
Mortgage-backed securities 1,360 19 (97) 1,282
Asset-backed securities 136 -- (8) 128
Corporate bonds 3,027 12 (293) 2,746
State and political
subdivision bonds 107 1 (6) 102
Foreign government bonds 15 -- (1) 14
----------------------------------
Total $4,659 $32 $(407) $4,284
----------------------------------
The cost and market value of fixed maturities available for sale were as
follows:
At December 31, 1996
Gross
Unrealized Market
(in millions) Cost Gains Losses Value
----------------------------------
U.S. Government bonds $ 334 $ 7 $ (3) $ 338
Mortgage-backed securities 1,464 22 (3) 1,483
Asset-backed securities 731 11 (1) 741
Corporate bonds 4,882 107 (51) 4,938
State and political
subdivision bonds 425 6 (1) 430
Foreign government bonds 230 8 (4) 234
----------------------------------
Total $8,066 $161 $(63) $8,164
----------------------------------
At December 31, 1995
Gross
Unrealized Market
(in millions) Cost Gains Losses Value
----------------------------------
U.S. Government bonds $ 380 $ 21 $ -- $ 401
Mortgage-backed securities 1,739 49 (1) 1,787
Asset-backed securities 999 28 (2) 1,025
Corporate bonds 5,608 260 (25) 5,843
State and political
subdivision bonds 183 7 -- 190
Foreign government bonds 209 10 (7) 212
----------------------------------
Total $9,118 $375 $(35) $9,458
----------------------------------
At December 31, 1994
Gross
Unrealized Market
(in millions) Cost Gains Losses Value
----------------------------------
U.S. Government bonds $ 273 $-- $ (12) $ 261
Mortgage-backed securities 561 2 (28) 535
Asset-backed securities 806 1 (29) 778
Corporate bonds 2,262 4 (104) 2,162
State and political
subdivision bonds 255 2 (4) 253
Foreign government bonds 108 -- (16) 92
----------------------------------
Total $4,265 $ 9 $(193) $4,081
----------------------------------
2.6. Stated due dates of fixed maturities
The table below shows the stated due dates of fixed maturities available for
sale at December 31, 1996.
Market
(in millions) Cost Value
-------------------
In 1997 $ 314 $ 315
1998 through 2001 1,585 1,610
2002 through 2006 2,151 2,184
After 2006 1,821 1,831
-------------------
Subtotal 5,871 5,940
Mortgage/asset-backed securities 2,195 2,224
-------------------
Fixed maturities available for sale $8,066 $8,164
-------------------
Actual maturities may differ from stated due dates as borrowers may have the
right to call or prepay obligations.
Information regarding sales, repayments and maturities of fixed maturities
available for sale during 1996 is set forth in the following table. In addition
to these sales, repayments and maturities, F&G Life transferred approximately
$918 million of fixed maturities to an unaffiliated insurance company in 1996 in
a noncash exchange related to a coinsurance contract (refer to Note 12).
Gross Gross
(in millions) Cost Proceeds Gains Losses
-------------------------------------
Proceeds from sales $ 602 $ 588 $14 $(28)
Proceeds from maturities/repayments 700 702 2 --
-------------------------------------
Total proceeds $1,302 $1,290 $16 $(28)
-------------------------------------
Proceeds from sales of fixed maturities held to maturity were $21 million (with
no gross gains and gross losses of $3 million) in 1995, and $65 million (with
gross gains and gross losses of $1 million) in 1994. Sales of fixed maturities
classified as held to maturity involved 5 different issuers in 1995 and
21 different issuers in 1994, and were based on evidence of significant
deterioration of the issuers' creditworthiness, as determined from developments
related specifically to the issuers. USF&G performed a detailed analysis of the
issuers' operating trends, cash flows and ability to meet debt service.
Proceeds from sales of fixed maturities classified as available for sale in 1995
were $489 million with gross gains of $16 million and gross losses of
$13 million. In 1994, proceeds from sales of fixed maturities classified as
available for sale were $345 million with gross gains of $2 million and gross
losses of $4 million.
From January 1, 1995 through December 3, 1995, reclassifications from held to
maturity to available for sale totaled $31 million of amortized cost. These
reclassifications were based on evidence of significant deterioration of the
issuers' creditworthiness. Gross unrealized losses on these securities totaled
$9 million at the time of the reclassifications. On December 4, 1995, all
remaining securities classified as held to maturity were reclassified to
available for sale as permitted by supplemental guidance to SFAS No. 115 issued
by the FASB in November 1995. This reclassification was made to allow maximum
flexibility in the management of the investment portfolio without being
restricted by accounting interpretations. The securities had a total amortized
cost of $4.5 billion, with gross unrealized gains of $117 million, at the time
of the reclassification.
2.7. Investment commitments
USF&G has outstanding commitments to provide permanent financing for various
real estate investments. The funded amounts of these commitments are
collateralized by the real estate projects. At December 31, 1996, unfunded
commitments totaled approximately $44 million, all of which is expected to be
funded in 1997.
2.8. Nonincome-producing investments
Fixed maturities at December 31, 1996, 1995 and 1994, for which no income was
recorded during those years, totaled $1 million, $5 million and $2 million,
respectively. In addition, nonincome-producing real estate totaled $28 million,
$142 million and $208 million at December 31, 1996, 1995 and 1994, respectively.
NOTE 3 INSURANCE LIABILITIES
3.1. Property/casualty insurance reserves - unpaid losses and loss expenses
Activity in the unpaid losses and loss expenses for the property/casualty
segment is summarized as follows:
(in millions) 1996 1995 1994
---------------------------
Total reserve at beginning of year, gross $6,097 $6,158 $6,370
Less reinsurance recoverables 984 1,016 1,054
---------------------------
Net balance at January 1 5,113 5,142 5,316
---------------------------
Incurred Related To:
Current year 2,030 1,856 1,752
Prior years (162) (54) (8)
---------------------------
Total incurred 1,868 1,802 1,744
---------------------------
Paid Related To:
Current year 764 635 634
Prior years 1,190 1,196 1,284
---------------------------
Total paid 1,954 1,831 1,918
---------------------------
Net balance at December 31 5,027 5,113 5,142
Plus reserves acquired 18 -- --
Plus reinsurance recoverables 987 984 1,016
---------------------------
Total reserve at end of year, gross $6,032 $6,097 $6,158
---------------------------
Loss and loss expenses recorded in the current period financial statements are
affected by changes in estimates of insured events occurring in prior periods.
Losses incurred in 1996 and 1995 included $111 million and $77 million,
respectively, of favorable development related to prior years' experience in the
assumed reinsurance business. Given the significant uncertainty in reserving for
assumed reinsurance, favorable development from loss reserves established in
prior years is generally applied to establish reserves in the current accident
year. Another $52 million of favorable development in 1996 related to the
workers' compensation line, which resulted primarily from the recognition of the
effect on reserve estimation models of the increased use of structured
settlements to close claims. Loss reserve decreases in workers' compensation
were substantially offset by reserve increases in general liability, commercial
auto and surety lines for the current accident year.
Reserves for asbestos-related illnesses and environmental claims cannot be
estimated with traditional loss reserving techniques. Liabilities are
established for known claims (including the cost of litigation) when sufficient
information has been developed to indicate the involvement of a specific
insurance policy, and management can reasonably estimate its liability. In
addition, liabilities have been established to cover additional exposures on
both known and unasserted claims. Estimates of the liabilities are reviewed and
updated continually. Developed case law and adequate claim history do not exist
for such claims, especially because significant uncertainty exists about the
outcome of coverage litigation and whether past claim experience will be
representative of future loss experience.
3.2. Life benefit reserves
The table below shows F&G Life's benefit reserves by policy type.
At December 31
(in millions) 1996 1995 1994
---------------------------
Single Premium Annuities:
Deferred $1,314 $1,590 $1,860
Immediate 1,001 943 867
Other annuities 610 542 492
Universal/term/group life 627 644 585
---------------------------
Gross balance 3,552 3,719 3,804
Reinsurance receivable 782 4 6
---------------------------
Total reserve, net $2,770 $3,715 $3,798
---------------------------
NOTE 4 DEBT
4.1. Debt outstanding
At December 31
(in millions) 1996 1995 1994
-------------------------
Corporate:
Short-term:
Credit facility $ -- $ -- $215
5 1/2% Swiss Franc Bonds due 1996 -- 80 --
Long-term:
5 1/2% Swiss Franc Bonds due 1996 -- -- 92
Zero Coupon Convertible Notes due 2009 102 136 130
8 3/8% Senior Notes due 2001 150 150 149
7% Senior Notes due 1998 145 145 --
7 1/8% Senior Notes due 2005 80 80 --
-------------------------
Total corporate debt 477 591 586
-------------------------
Real Estate and Other:
Short-term -- -- 12
Long-term:
9.96% Secured Notes due through 1999 -- 11 14
Other 5 5 16
-------------------------
Total real estate and other debt 5 16 42
-------------------------
Total debt outstanding $482 $607 $628
-------------------------
4.2. Short-term debt
For general corporate purposes, USF&G maintained a committed, standby credit
facility with a group of foreign and domestic banks totaling $250 million at
December 31, 1996. This facility, which was entered into in March 1996, permits
either borrowing of funds or letter of credit issuances, and will expire in
2001. Prior credit facilities were in place for up to $250 million at December
31, 1995 and $400 million at December 31, 1994. USF&G pays facility fees on the
total amount of the commitments based on its long-term debt credit ratings.
There were no borrowings against the facility at December 31, 1996 and 1995.
Borrowings at December 31, 1994 totaled $215 million. Interest rates are based
on current market rates. USF&G was in compliance with the covenants contained in
these agreements at December 31, 1996, 1995 and 1994. The most restrictive
covenants require USF&G to maintain a tangible net worth of at least
$1.15 billion plus 50 percent of the net income earned during the commitment
period and an indebtedness-to-capital ratio below 55 percent.
At December 31, 1996, USF&G also maintained a $150 million multi-currency credit
facility. USF&G pays facility fees on the total amount of each commitment. At
December 31, 1996, there were no borrowings against the multi-currency credit
facility. At December 31, 1995, USF&G had both a $100 million multi-currency
credit facility and a $50 million letter of credit facility. There were no
borrowings against the multi-currency credit facility at December 31, 1995, at
which date there was a $12 million balance outstanding on the letter of credit
facility. At December 31, 1994, there were no borrowings against either
facility, both of which were established during 1994.
4.3. Debt extinguishments
On January 5, 1996, the remaining balance of the 5 1/2% Swiss Franc Bonds
matured and was repaid. The repayment was accomplished with $75 million borrowed
against the committed credit facility, with the remainder of the balance paid
from excess corporate cash. In addition, from April through August 1996, USF&G
repurchased approximately $39 million of outstanding Zero Coupon Convertible
Notes through the use of excess corporate cash and borrowings from the credit
facility. The balance of the credit facility was repaid in December 1996 with
excess corporate cash and proceeds from the issuance of capital securities
(refer to Note 6).
In 1996, real estate and other debt was reduced by $11 million as a result of a
deed-in-lieu of foreclosure whereby property with an outstanding $7 million note
was conveyed back to the lender and a $4 million loan was repaid. At December
31, 1994, real estate and other debt included $12 million under a line of credit
maintained by a subsidiary of USF&G Corporation. The balance under this credit
facility was repaid during 1995. Prepayment of $3 million of the 9.96% Secured
Notes due through 1999 further reduced real estate and other debt in 1995.
4.4. Shelf registrations
Effective February 20, 1996, USF&G Corporation, along with two business trusts
in which USF&G has a controlling interest (the "Trusts"), have a shelf
registration statement which permits the issuance by the Trusts of up to
$210 million of capital securities. In January 1997, $100 million of these
securities were issued under the shelf registration (refer to Note 6).
In addition, USF&G has available $142 million of unissued debt, preferred stock,
common stock and warrants under a 1994 shelf registration.
4.5. Redeemable debt
The Zero Coupon Convertible Notes are redeemable beginning in 1999 for an amount
equal to the original issue price plus amortized original issue discount.
4.6. Maturities of long-term debt
Real Estate
(in millions) Corporate and Other
--------------------------
1997 $ -- $--
1998 145 --
1999 -- --
2000 -- --
2001 150 --
--------------------------
NOTE 5 LEASES
USF&G occupies office facilities under lease agreements that expire at various
dates through 2009. In addition, data processing, office and transportation
equipment is leased under agreements that expire at various dates through 2001.
Most leases contain renewal options that may provide for rent increases based on
prevailing market conditions. Some leases also may contain purchase options
based on fair market value or contractual values, if greater. Capital leases are
immaterial in amount. Rent expense for the years ended December 31, 1996, 1995
and 1994 was $40 million, $44 million and $63 million, respectively. Rent
expense in 1994 included a $9 million loss on long-term subleases.
The following table shows the future minimum payments to be made under
noncancelable leases at December 31, 1996.
Home Other
Office Office Equip-
(in millions) Building Space ment Total
-------------------------------------
1997 $ 16 $22 $16 $ 54
1998 16 19 14 49
1999 19 16 6 41
2000 25 11 3 39
2001 26 6 14 46
After 2001 199 5 -- 204
-------------------------------------
Total $301 $79 $53 $433
-------------------------------------
USF&G is also the lessor under various subleases on its office facilities. The
minimum rentals to be received in the future under noncancelable subleases is
$112 million at December 31, 1996.
USF&G's principal office lease involves the Tower which the Corporation sold in
1984 and subsequently leased back. As of January 1997, USF&G has vacated the
Tower (refer to Note 1.11); however, the lease, which provides for rent
increases every five years through its expiration in September 2009, will not be
terminated. USF&G will continue to make rental payments under the lease.
NOTE 6 CAPITAL SECURITIES OF SUBSIDIARY TRUSTS
On December 24, 1996, USF&G Capital I ("Capital I"), a business trust in which
USF&G has a controlling interest, issued $100 million (100,000 shares) of 8 1/2%
Capital Securities, Series A ("Series A Securities"). Payments on the Series A
Securities are guaranteed by USF&G on a subordinated basis, but only to the
extent Capital I has funds available to make such payments. This guarantee,
considered together with the terms of debentures issued by USF&G (described
below) and an agreement for USF&G to pay other expenses and liabilities of
Capital I, constitutes a full and unconditional subordinated guarantee by USF&G
of Capital I's obligations under the Series A Securities.
Capital I used the proceeds from the Series A Securities issuance to purchase
$100 million principal amount of 8 1/2% Junior Subordinated Debentures issued by
USF&G ("Series A Debentures"). The Series A Debentures rank junior and
subordinate in right of payment to certain other indebtedness of USF&G, and
mature on December 15, 2045.
Interest payments on the Series A Debentures are deferrable, at USF&G's option,
at any time for up to five years at a time, and provided there has not been an
event of default. In the event USF&G elects to defer interest payments on the
Series A Debentures, payments of distributions on the Series A Securities will
likewise be deferred. Interest and distributions continue to accrue during any
payment deferral period.
The Series A Debentures are redeemable under certain circumstances related to
tax events at a price of $1,000 per debenture plus any accrued and unpaid
interest and a "make whole" payment. Proceeds from any redemptions of the Series
A Debentures will be used to redeem a like amount of the Series A Securities.
Additionally, USF&G has the right, under certain circumstances related to tax
events, to shorten the maturity of the Series A Debentures to a date no earlier
than June 24, 2016, in which case the stated maturity of the Series A Securities
will likewise be affected.
The Series A Debentures, as well as USF&G's interest in Capital I, are
eliminated in consolidation. The Series A Securities are shown in the
Consolidated Statement of Financial Position under the caption, "USF&G-obligated
mandatorily redeemable capital securities of subsidiary trust holding solely
junior subordinated deferrable interest debentures of USF&G".
On January 10, 1997, USF&G Capital II ("Capital II"), a second business trust in
which USF&G also has a controlling interest, issued $100 million (100,000
shares) of 8.47% Capital Securities, Series B ("Series B Securities"). Payments
on the Series B Securities are guaranteed on the same basis as the guarantee of
the Series A Securities.
Capital II used the proceeds from the Series B Securities issuance to purchase
$100 million principal amount of 8.47% Deferrable Interest Junior Subordinated
Debentures, Series B ("Series B Debentures") issued by USF&G, which mature on
January 10, 2027. The Series B Debentures also rank junior and subordinate to
certain other indebtedness of USF&G, but rank equal with the Series A
Debentures. The Series B Debentures and Series B Securities have interest/
distribution deferral terms similar to those of the Series A Debentures and
Series A Securities, described above.
The Series B Debentures are redeemable at USF&G's option at any time beginning
in January 2007 at scheduled redemption prices ranging from $1,042 to $1,000 per
debenture, plus any accrued and unpaid interest. The Series B Debentures are
also redeemable prior to January 2007 under certain circumstances related to tax
and other special events. Proceeds from any redemptions of the Series B
Debentures will be used to redeem a like amount of the Series B Securities.
Additionally, USF&G has the right, under certain circumstances related to tax
events, to shorten the maturity of the Series B Debentures to a date no earlier
than July 10, 2016.
The sole assets of Capital I and Capital II are the Series A and Series B
Debentures, respectively. Neither Capital I nor Capital II have operations
independent of the aforementioned relationships with USF&G and the holders of
their respective capital securities. In the event USF&G exercises its right to
defer interest payments on the Series A or Series B Debentures, it will be
prohibited from making payments with respect to any capital debt or securities
which rank equal or junior in right of payment to the Series A and Series B
Debentures, including cash dividends on its common or preferred stock. In no
case may the deferral of payments described above extend beyond the stated
maturity dates of the respective securities.
NOTE 7 SHAREHOLDERS' EQUITY
7.1. Classes of stock
USF&G is authorized to issue 12 million shares of $50 par value preferred stock
and 240 million shares of $2.50 par value common stock.
7.2. Preferred stock
USF&G had 4 million shares of $4.10 Series A Convertible Exchangeable Preferred
Stock ("Series A Preferred Stock") issued and outstanding at December 31, 1996,
1995 and 1994. On January 31, 1997, USF&G redeemed 50 percent of the outstanding
Series A Preferred Stock for $100 million cash.
Each remaining share of the Series A Preferred Stock entitles the holder to an
annual cumulative dividend of $4.10 and a liquidation preference of $50 plus
accrued and unpaid dividends. At the option of the holder, subject to adjustment
under certain conditions, each share of Series A Preferred Stock is convertible
to 1.206 shares of USF&G's common stock. The Series A Preferred Stock is
exchangeable in whole at USF&G's option on any dividend payment date for 8.2%
Convertible Subordinated Debentures due 2011 at a rate of $50 principal amount
per share. Shares of the Series A Preferred Stock are redeemable for cash, in
whole or in part, at USF&G's option at $50 per share plus accrued and unpaid
dividends to the redemption date.
Holders of the preferred stock are not entitled to vote, except that they may
vote separately with respect to certain matters including the authorizations of
any additional classes of capital stock that would rank senior to the preferred
stock. In the event that six quarterly dividends for Series A Preferred Stock
are unpaid, USF&G's Board of Directors will be increased by two members, and
holders of preferred stock may elect two directors until all such dividends in
arrears have been paid.
USF&G had 277,550 shares and 1.3 million shares of $10.25 Series B Cumulative
Convertible Preferred Stock ("Series B Preferred Stock") issued and outstanding
at December 31, 1995 and 1994, respectively. Additionally, at December 31, 1994,
USF&G had 1.3 million shares of $5.00 Series C Cumulative Convertible Preferred
Stock ("Series C Preferred Stock") issued and outstanding.
During 1996 and 1995, USF&G called for redemption 233,550 shares and 832,650
shares, respectively, of its Series B Preferred Stock. These shares were
converted into 1.9 million shares and 6.9 million shares, respectively, of
common stock in accordance with the terms of the Series B Preferred Stock.
Holders of an additional 20,000 shares and 189,800 shares of Series B Preferred
Stock voluntarily converted their shares into 166,320 shares and 1.6 million
shares, respectively, of common stock during 1996 and 1995. The holder of
another 24,000 shares of Series B Preferred Stock voluntarily redeemed those
shares for cash during 1996.
During 1994, USF&G called for redemption 2.4 million shares of its Series C
Preferred Stock. The remaining shares were called for redemption in 1995. As a
result of these calls, USF&G issued 15.4 million shares of common stock.
7.3. Changes in common stock shares
1996 1995 1994
------------------------------------------
Outstanding, January 1 119,606,095 104,810,794 91,418,372
Shares repurchased (8,400,700) -- --
Shares issued 3,035,094 14,795,301 13,392,422
------------------------------------------
Outstanding, December 31 114,240,489 119,606,095 104,810,794
------------------------------------------
In conjunction with a stock repurchase program instituted in 1996, USF&G
repurchased 8.4 million shares of its common stock during the year. USF&G also
issued 2.1 million shares of common stock during 1996 for the conversion of the
Series B Preferred Stock. During 1995, USF&G issued 8.5 million shares of common
stock for the conversion of the Series B Preferred Stock, and 5.5 million shares
of common stock for the conversion of the Series C Preferred Stock. Another 9.9
million common stock shares were issued in 1994 for the conversion of the Series
C Preferred Stock.
7.4. Shareholder rights plan
USF&G has a shareholder rights plan ("the plan") to deter coercive or unfair
takeover tactics and to prevent a potential purchaser from gaining control of
USF&G without offering a fair price to all of the Corporation's shareholders.
The plan, which otherwise would have expired in 1997, was extended until 2007
and amended in several respects in February 1997. Under the plan, as amended,
each outstanding share of USF&G's common stock has one preferred share purchase
right (a "right") expiring in 2007. Each right entitles the registered holder to
purchase 1/100 of a share of a new class of junior preferred stock for $105. The
rights cannot be exercised unless certain events occur that might lead to a
concentration in ownership of common shares or unless certain other events
relating to a change in control take place. At that time, each right may be
converted into rights to acquire common stock having a value of twice the $105
exercise price. In certain circumstances, the plan also provides that the rights
can be exchanged for USF&G's common stock without payment of the purchase price.
Rights held by holders of 15 percent or more of USF&G's common stock, or their
associates, may be null and void. Under certain conditions, the rights also
become convertible into the rights to acquire shares of common stock of an
acquiror having a value of twice the exercise price. USF&G will generally be
entitled to redeem the rights, at $.01 per right, any time before the tenth day
(subject to further deferral) after a 15 percent position is acquired.
7.5. Dividend restrictions
There are certain restrictions on payments of dividends by insurance
subsidiaries that may limit USF&G Corporation's ability to receive funds from
its subsidiaries. Under the Maryland Insurance Code, Maryland insurance
subsidiaries, such as USF&G Company and F&G Life, must provide the Maryland
Insurance Commissioner (the "Commissioner") with not less than thirty days'
prior written notice before payment of an "extraordinary dividend" to its
holding company. (Refer to Section 4.3, "Dividend Restrictions", of Management's
Discussion and Analysis of Financial Condition and Results of Operations.) In
addition, ten days' prior notice of any other dividend must be given to the
Maryland Insurance Commissioner prior to payment, and the Commissioner has the
right to prevent payment of such dividend if it is determined that such payment
could impair the insurer's surplus or financial condition.
Dividends of $134 million, $83 million and $125 million were paid during 1996,
1995 and 1994, respectively, to USF&G Corporation by USF&G Company. Such
dividends were not subject to the requirements for extraordinary dividends. In
addition, effective June 1, 1995, and with the Commissioner's consent, USF&G
Company declared an extraordinary dividend payable to USF&G Corporation for
$323 million, which consisted of all of the issued and outstanding capital stock
of F&G Life. Prior to payment of such dividend, F&G Life was a wholly-owned
subsidiary of USF&G Company. As a result of such dividend payment, F&G Life is
now a direct, wholly-owned subsidiary of USF&G Corporation. Dividends of up to
$137 million are available for payment from USF&G Company to USF&G Corporation
during 1997 without being deemed extraordinary. Dividends of $139 million and
$31 million were paid during 1996 and 1995, respectively, to USF&G Corporation
by F&G Life. In addition, effective December 29, 1995 and with the
Commissioner's consent, F&G Life declared an extraordinary dividend payable to
USF&G Corporation consisting of investments in three real estate properties,
totaling $28 million. Consequently, all of the 1996 dividends were deemed
extra-ordinary, and were paid with the Commissioner's consent. Further, any
dividends which F&G Life would propose to pay in the twelve-month period
beginning September 30, 1996 would be deemed extraordinary dividends and subject
to the thirty-day notice period.
NOTE 8 FINANCIAL INSTRUMENTS AND DERIVATIVES
Fair value information is based on quoted market prices where available. In
cases where quoted market prices are not available, fair values are based on
internal estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, such as
applicable discount rate and estimated future cash flows. Therefore, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. Fair value disclosure requirements exclude certain financial
instruments and all nonfinancial instruments. The fair value of many
insurance-related liabilities do not require disclosure. However, in its
strategy of asset/liability matching, USF&G takes into consideration the future
cash requirements of its insurance related liabilities. Had a presentation of
these liabilities been made, due to their long-term nature, the fair value of
insurance-related liabilities would have been significantly less than their
carrying value.
8.1. Financial instruments
Cash and Short-Term Investments: The carrying amounts reported in the
Consolidated Statement of Financial Position for these instruments approximate
their fair values.
Fixed Maturity Investments: Fair values for publicly traded fixed maturity
investments are based on quoted market prices. For privately placed fixed
maturities, estimated fair values are derived by discounting expected future
cash flows using a current market rate applicable to the yield, credit quality
and maturity of the investment. At December 31, 1996, the amortized costs and
market values of fixed maturity investments were as follows:
Amortized Market
(in millions) Cost Value
-------------------------
Publicly traded $7,736 $7,833
Private placements 330 331
-------------------------
Total fixed maturity investments $8,066 $8,164
-------------------------
All fixed maturities are classified as available for sale and are reported in
the Consolidated Statement of Financial Position at market value.
Common and Preferred Stocks: The carrying values of common and preferred stocks
as reported in the Consolidated Statement of Financial Position are based on
quoted market prices and reflect their fair values.
Mortgage Loans and Policy Loans: The fair values for mortgage loans and policy
loans are estimated based on discounted cash flow analyses, using interest rates
currently being offered for loans with similar credit risk. Loans with similar
characteristics are aggregated for purposes of the calculations. At December 31,
1996, the carrying amounts and fair values of investments in mortgage loans and
policy loans were as follows:
Carrying Fair
(in millions) Amount Value
------------------------
Mortgage loans $406 $423
Policy loans 74 77
------------------------
Other Assets and Other Liabilities: Other invested assets considered financial
instruments include equity interests in minority ownership investments,
interests in limited partnerships and related notes receivable. It is not
practicable to estimate their fair value due to the closely-held nature of these
investments.
Other assets and liabilities considered financial instruments include agents'
balances receivable, prepaid and accrued expenses and other receivables
generally of a short-term nature. It is assumed the carrying value of these
financial instruments approximates their fair value.
Short- and Long-Term Debt: The carrying amount of USF&G's short-term borrowings
approximates its fair value. The fair value of long-term debt is based on market
quotes or estimated discounted cash flow analyses, based on USF&G's current
incremental borrowing rates for similar types of borrowing arrangements. The
carrying amounts and estimated fair value of debt instruments at December 31,
1996 were as follows:
Carrying Fair
(in millions) Amount Value
------------------------
Corporate long-term $477 $503
Real estate and other 5 5
------------------------
Total $482 $508
------------------------
Investment Contracts: Fair values for F&G Life's single premium deferred
annuities, other deferred annuities, single premium immediate annuities and
supplementary contracts are primarily derived by estimating the cost to
extinguish its liabilities under an assumption reinsurance transaction. The
estimated statutory profits the assuming company would realize from the
transaction are discounted at a typical internal rate of return objective. If
such a transaction were to occur, GAAP would require the unamortized balance of
deferred policy acquisition costs associated with these liabilities to be
immediately expensed. The amount of the related unamortized DPAC was
approximately $104 million at December 31, 1996. The fair values of the
remaining liabilities under investment contracts are estimated using discounted
cash flow calculations, based on interest rates currently being offered for like
contracts with similar maturities.
The carrying amounts and estimated fair values of F&G Life's liabilities for
investment contracts at December 31, 1996 were as follows:
Carrying Fair
(in millions) Amount Value
------------------------
Single premium deferred annuities $ 542 $ 507
Other deferred annuities 533 478
Single premium immediate annuities
and supplementary contracts 96 91
Group annuities 83 80
------------------------
Total $1,254 $1,156
------------------------
Off-Balance Sheet Financial Instruments: The fair values of USF&G's unfunded
real estate commitments and its financial commitment on investments totaled
$44 million at December 31, 1996, and were estimated using discounted cash flow
analyses based on USF&G's current incremental borrowing rate for similar types
of borrowing arrangements. The fair value of foreign exchange options, which are
derived from quoted market prices, and common stock put options, which are
determined using option pricing models, were less than $1 million at December
31, 1996. The estimates of the fair value of USF&G's interest rate swaps were
obtained from the counterparties to the agreement or were derived by discounting
the expected future cash flows, and totaled $1 million at December 31, 1996.
8.2. Derivatives
USF&G uses derivative instruments to manage foreign exchange and interest rate
risk, reduce borrowing costs and minimize the impact of rate fluctuations on the
settlement of debt and other financial instruments. USF&G is subject to the risk
that the counterparties will fail to perform. However, these risks are mitigated
by the credit quality of the counterparties and the gains and losses of the
underlying instruments. USF&G seeks to manage the credit risk through monitoring
procedures and investigation of counterparties to the transactions. USF&G does
not use derivative instruments for trading purposes.
Foreign Exchange Options: The Corporation relies predominantly on natural hedges
to manage foreign exchange rate risk by maintaining offsetting foreign asset and
foreign liability positions wherever possible, without sacrificing other
financing objectives. Foreign exchange derivative instruments in use at
December 31, 1996 consisted of a (pounds) 3.8 million call option which will
expire in March 1997.
Common Stock Put Options: In support of USF&G's share repurchase plan, the
Corporation has written put options on its common stock. At December 31, 1996,
put options outstanding on 551,463 common shares were "out of the money".
Interest Rate Instruments: The Corporation uses interest rate derivatives
selectively to enable it to maintain a certain fixed/floating rate exposure
given the current and projected interest rate environment. In conjunction with
the 8 3/8% Senior Notes, USF&G has outstanding two interest rate swaps with a
total notional amount of $150 million which convert the fixed interest payments
from this debt to floating rate debt for the first three years of the seven-year
term of the debt. In April 1996, USF&G entered into two 5-year interest rate
swaps associated with the Corporation's 7 1/8% Senior Notes which mature in June
2005. This transaction converts the debt to floating rate debt from fixed rate
with a total notional amount of $80 million. At December 31, 1996, USF&G had
approximately 52 percent fixed rate debt ($252 million) and 48 percent floating
rate debt ($230 million) after accounting for the effect of these interest rate
swaps.
These agreements involve, to varying degrees, interest rate and credit risk. The
notional amount represents the amount of the underlying debt to which the swaps
apply, not future cash requirements. The maximum credit risk related to the swap
agreements is the amount related to periodic settlements, which is not material
at December 31, 1996.
NOTE 9 STOCK-BASED COMPENSATION
Stock options have been granted to full-time officers and key employees under
three incentive plans: Stock Option Plan of 1987, Stock Option Plan of 1990 and
Stock Incentive Plan of 1991 (collectively, the "Management Plans"). In
addition, the 1994 Stock Plan for Employees of USF&G (the "Broad-Based Plan")
grants eligible employees, other than officers and key employees participating
in other stock incentive plans, options to purchase shares.
The Corporation applies APB No. 25 and related interpretations in accounting for
its employee stock options. Under APB No. 25, no compensation expense is
recognized since the exercise price of the options is equal to the market price
of the underlying stock on the date of the grant.
In addition, under the Corporation's Long-Term Incentive Program ("LTIP"), USF&G
awards shares of common stock to full-time officers based on three-year
performance goals established by the Board of Directors. Compensation expense,
determined under APB No. 25 as the number of shares to be issued at a given
performance level times the current market price of the stock, is accrued over
the three-year performance cycle. Net income for 1996 included $13 million of
compensation expense for LTIP awards.
Under the Management Plans and Broad-Based Plan, the Corporation may grant
options to participating employees to purchase up to 9 million and 4 million
shares of common stock, respectively. Under all plans, the exercise price of
each option equals the market price of USF&G's stock on the date of grant, and
an option's maximum term is ten years. Options vest ratably over three years
under the Management Plans, and vest after two years under the Broad-Based Plan.
Had compensation expense for these plans been determined based on the fair value
of awards at the grant date, as prescribed by SFAS No. 123, net income and
earnings per share would have been as follows:
1996 1995
-----------------
Pro forma net income (in millions) $ 254 $ 205
Pro forma primary earnings per share 1.99 1.59
Pro forma fully diluted earnings per share 1.88 1.51
-----------------
Note: SFAS No. 123 applies to awards granted in fiscal years that begin after
December 15, 1994; therefore, no pro forma disclosures are provided for 1994.
Consequently, the effects of applying SFAS No. 123 shown here are not likely to
be representative of the effects in future years due to the exclusion of awards
granted in prior years but vesting (and therefore expensed) in 1995 and 1996.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The following weighted-average assumptions
were used for grants in 1996 and 1995, respectively: dividend yield of 1.24
percent and 1.53 percent; expected volatility of 25.0 percent and 25.4 percent;
risk-free interest rates of 6.36 percent and 7.25 percent for the Management
Plans, and 5.98 percent and 7.07 percent for the Broad-Based Plan; and expected
lives for both 1996 and 1995 of seven years for options issued under the
Management Plans and four years for options issued under the Broad-Based Plan.
The Black-Scholes method is one of many models used to calculate the fair value
of an option. Because the models are sensitive to changes in the different
assumptions used, the effect on fair value estimates can be significant.
Accordingly, the derived fair value of options cannot be substantiated by
comparison to independent markets. The fair value also cannot be realized in
immediate settlement.
A summary of the status of USF&G's stock option plans as of December 31, 1996
and 1995, and changes during the years ended on those dates is presented below:
1996 1995
Weighted- Weighted-
Average Average
Shares Exercise Price Shares Exercise Price
-----------------------------------------------------------
Outstanding at
beginning of year 7,290,207 $12.97 5,908,451 $12.86
Granted 3,363,988 14.63 2,714,806 13.72
Exercised (910,396) 11.45 (733,603) 7.33
Surrendered or
cancelled (642,391) 15.30 (599,447) 16.86
-----------------------------------------------------------
Outstanding at
end of year 9,101,408 $13.95 7,290,207 $12.97
-----------------------------------------------------------
Options exercisable
at end of year 3,714,777 $13.39 2,707,398 $12.82
-----------------------------------------------------------
Weighted-average fair
value of options granted
during the year $ 4.55 $ 4.63
-----------------------------------------------------------
In 1994, 2,245,500 options were granted at a weighted-average exercise price of
$14.42, while 483,590 options were exercised and 677,595 options were
surrendered or cancelled.
The following table summarizes information about stock options outstanding at
December 31, 1996:
Range of Options Outstanding Options Exercisable
Exercise Remaining Average Average
Price Number Life* Price** Number Price**
----------------------------------------------------------------
$6.25-10 1,168,035 4.9 $ 9.06 1,122,097 $ 9.22
11-15 7,399,621 8.2 14.12 2,156,587 14.04
16-20 318,166 7.6 16.89 220,507 16.65
21-28 -- -- -- -- --
29-30.82 215,586 2.2 29.77 215,586 29.77
----------------------------------------------------------------
$6.25-30.82 9,101,408 7.6 $13.95 3,714,777 $13.39
----------------------------------------------------------------
*Represents weighted-average remaining contractual life of options in years.
**Represents weighted-average exercise price of options.
NOTE 10 RETIREMENT BENEFITS
10.1. Retirement plans
USF&G has noncontributory retirement plans covering most regular full-time
employees of the Corporation and its affiliates. An employee's pension benefit
is based on salary, years of service and Social Security benefits. USF&G makes
contributions to the retirement plans based on amounts required to be funded
under provisions of the Employee Retirement Income Security Act of 1974, as
amended. The plans' funded status and amounts recognized in the consolidated
financial statements were as follows:
At December 31
(dollars in millions) 1996 1995 1994
-------------------------
Actuarial Present Value of:
Accumulated benefit obligation $370 $ 388 $303
Vested benefits 355 372 291
-------------------------
Plan assets at fair value $379 $ 348 $289
Projected benefit obligation 385 403 313
-------------------------
Funded status (6) (55) (24)
Unrecognized net loss 105 134 98
Unrecognized prior service cost (benefit) (15) (19) (22)
Adjustment for minimum pension liability -- (100) (63)
-------------------------
Net prepaid/(accrued) pension cost $ 84 $ (40) $(11)
-------------------------
Actuarial Assumptions:
Weighted-average discount rate 7.50% 7.00% 8.75%
Average rate of increase in future
compensation levels 5.0 5.0 5.0
Expected long-term rate of return
on assets 8.5 8.5 8.5
-------------------------
As a result of the higher interest rate environment, USF&G increased the
discount rate assumption as of December 31, 1996, which caused the accumulated
benefit obligation to decrease. In accordance with SFAS No. 87, USF&G had
recorded a minimum pension liability as a separate reduction of shareholders'
equity for the underfunded amount, representing the accumulated benefit
obligation in excess of the fair value of the plans' assets, plus the amount of
prepaid pension costs, as of December 31, 1995 and 1994. During 1996, USF&G
increased its fundings to the pension plan, which, combined with the increased
discount rate, eliminated the previously recorded minimum pension liability.
The assets held by the plan consist primarily of fixed-income and equity
securities. USF&G classifies prepaid pension cost with other assets and accrued
pension cost with other liabilities in the Consolidated Statement of Financial
Position.
The components of net pension expense were as follows:
(in millions) 1996 1995 1994
-------------------------
Service cost $ 8 $ 5 $ 6
Interest cost 28 27 26
Actual return on plan assets (20) (63) 10
Net amortization and deferral (4) 43 (29)
-------------------------
Net periodic pension expense $ 12 $ 12 $ 13
-------------------------
10.2. Postretirement benefits
USF&G sponsors a defined-dollar postretirement health care (medical and dental)
plan and noncontributory life insurance plan covering most regular full-time
employees of the Corporation and its affiliates. USF&G's contributions and costs
are determined based on the annual salary and the type of coverage elected by
covered employees. USF&G's contributions to the plan are a percentage of plan
costs based on age and service of employees at retirement. Additionally, the
plan costs are capped at projected 1997 cost levels, and retiree contributions
are increased for the total medical costs over the projected levels.
USF&G accrues the cost of health care, life insurance and other retiree benefits
when the employees' services are rendered, and funds the health care and life
insurance benefit costs principally on a pay-as-you-go basis.
The plans' combined funded status and amounts recognized in the consolidated
financial statements were as follows:
At December 31
(in millions) 1996 1995 1994
-------------------------
Accumulated Postretirement Benefit Obligation:
Retirees $43 $48 $45
Fully eligible active plan participants 1 1 1
Other active plan participants 7 8 6
-------------------------
51 57 52
Plan assets at fair value -- -- --
-------------------------
Funded status 51 57 52
Unrecognized net gain (loss) 2 (4) 1
-------------------------
Accrued postretirement benefit costs $53 $53 $53
-------------------------
USF&G classifies accrued postretirement benefit costs with other liabilities in
the Consolidated Statement of Financial Position.
Net periodic postretirement benefit costs consisted of $1 million of service
cost and $4 million of interest cost for each of the years ended December 31,
1996, 1995 and 1994. The weighted-average annual assumed rate of increase in per
capita cost of covered benefits (i.e., medical trend rate) for the plans is 7.25
percent for 1997 (7.75 percent and 9.00 percent for 1996 and 1995, respectively)
and is assumed to decrease to 5.25 percent in 2002 for participants age 65 or
younger, and 7.00 percent for 1997 (7.40 percent and 7.75 percent for 1996 and
1995, respectively), decreasing to 5.25 percent for participants over age 65,
and remain at that level thereafter. Increasing the assumed medical trend rate
by one percentage point in each year would increase the accumulated
postretirement benefit obligation by approximately $4 million and the aggregate
of the service and interest cost components of net periodic postretirement
benefit cost for the year by less than $1 million. The weighted-average discount
rate used in determining the accumulated postretirement benefit obligation was
7.50 percent, 7.00 percent and 8.75 percent at December 31, 1996, 1995 and 1994,
respectively.
NOTE 11 INCOME TAXES
USF&G Corporation and its subsidiaries file a consolidated federal income tax
return. Deferred tax liabilities or assets are recognized for the estimated
future tax effects attributable to net operating loss carryforwards ("NOLs") and
to temporary differences between the tax basis and GAAP basis of an asset or a
liability. A valuation allowance is required if, based on the weight of
available evidence, it is more likely than not that some or all of the deferred
tax asset will not be realized.
At December 31, 1996, the net deferred tax asset of $436 million recorded by
USF&G was supported by a combination of forecasted taxable income and a tax
strategy that USF&G would implement to prevent NOLs from expiring. Based on the
weight of positive and negative evidence, USF&G believes that it is more likely
than not that it will be able to realize all of its deferred tax assets.
Accordingly, there was no valuation allowance at December 31, 1996.
11.1. Significant components of deferred tax assets and liabilities
At December 31
(in millions) 1996 1995 1994
-------------------------
Deferred Tax Liabilities:
DPAC $146 $139 $165
Net unrealized gains 33 95 --
Prepaid pension cost 29 21 18
Real estate 15 -- --
Other invested assets 4 -- 5
Other 37 32 --
-------------------------
Total deferred tax liabilities 264 287 188
-------------------------
Deferred Tax Assets:
Facilities exit costs 51 75 74
Unpaid losses and loss expenses 228 236 249
Future policy benefits 59 66 54
Unearned premiums 54 54 45
Foreign reinsurance 47 56 50
Net unrealized losses -- -- 52
Real estate -- 5 25
Other invested assets -- 27 --
Minimum pension liability -- 35 22
Postretirement benefits 19 19 19
Other 40 8 33
NOLs 202 207 263
-------------------------
Total deferred tax assets 700 788 886
Valuation allowance for deferred tax assets -- 36 249
-------------------------
Deferred tax assets, net of
valuation allowance 700 752 637
-------------------------
Net deferred tax assets $436 $465 $449
-------------------------
The components of the changes in the valuation allowance were recorded through
shareholders' equity and operations, as follows:
At December 31
(in millions) 1996 1995 1994
-------------------------
Changes Recognized in Shareholders' Equity:
Change related to net unrealized
(gains) losses $ 95 $(147) $ 119
Change related to minimum
pension liability (35) 13 (8)
-------------------------
Total changes recognized in
shareholders' equity 60 (134) 111
-------------------------
Changes Recognized in Statement of Operations:
Reduction for increased likelihood
of realization (96) (81) (267)
Other adjustments -- 2 (10)
-------------------------
Total changes recognized in
statement of operations (96) (79) (277)
-------------------------
Total change in valuation allowance $(36) $(213) $(166)
-------------------------
11.2. Components of provision for income taxes (benefit)
(in millions) 1996 1995 1994
-------------------------
Current tax $ 8 $ 61 $ 32
NOL utilization (5) (56) (22)
-------------------------
Current tax, net of NOL utilization 3 5 10
Deferred tax (benefit) 91 62 (23)
Adjustment of the beginning of the
year valuation allowance (96) (81) (267)
-------------------------
Provision for income taxes (benefit) $ (2) $(14) $(280)
-------------------------
Income taxes paid $ 5 $ 5 $ 12
-------------------------
11.3. Reconciliation of taxes at federal rates to provision for income taxes
(benefit)
(in millions) 1996 1995 1994
-------------------------
Tax at federal rates $ 91 $ 68 $ (16)
Tax Effect (Benefit):
Adjustment of the beginning of the
year valuation allowance (96) (81) (267)
Tax-exempt interest income (2) (2) (3)
Adjustment of property/casualty salvage
and other subrogation accruals -- -- 6
Other 5 1 --
-------------------------
Provision for income taxes (benefit) $ (2) $(14) $(280)
-------------------------
11.4. Net operating loss carryforwards
At December 31, 1996, USF&G had NOLs remaining for tax return purposes expiring
in 2006. The amount and timing of recognizing the benefit of these NOLs depends
on future taxable income and limitations imposed by tax laws. The approximate
amounts of USF&G's NOLs on a regular tax basis and an alternative minimum tax
("AMT") basis at December 31, 1996 were as follows:
(in millions) Tax Return
--------------
Regular tax basis $578
AMT basis 335
--------------
NOTE 12 REINSURANCE
USF&G reinsures portions of its policy risks with other insurance companies or
underwriters, and assumes policy risks from other insurance companies and
through participation in pools and associations. Reinsurance gives USF&G the
ability to write larger risks and control its exposure to losses from
catastrophes or other events that cause unfavorable underwriting results.
USF&G's ceding reinsurance agreements are generally structured on a treaty basis
whereby all risks meeting certain criteria are automatically reinsured. Amounts
recoverable from reinsurers are estimated in a manner consistent with the claim
liability associated with the reinsured policy. Reinsurance contracts do not
relieve USF&G from its obligation to policyholders. Failure of reinsurers to
honor their obligations could result in losses to USF&G. USF&G evaluates the
financial condition of its reinsurers and monitors concentrations of credit
risks arising from similar economic characteristics of the reinsurers to
minimize its exposure to significant losses from reinsurer insolvencies.
At December 31, 1996, 1995 and 1994, property/casualty reinsurance receivables
totaled $794 million, $600 million and $548 million, respectively. Of these
amounts, approximately $95 million, $100 million and $122 million, respectively,
were associated with the Workers' Compensation Reinsurance Bureau ("WCRB"), a
single voluntary reinsurance association of primary workers' compensation
insurers formed for the purpose of providing excess of loss reinsurance to its
members. USF&G is a member of this pool. Each member is required to hold
collateral, for the benefit of all member companies, in the form of
investment-grade securities equaling 115 percent of the member's share of
outstanding receivables of the WCRB. This collateral requirement mitigates the
risk of the WCRB becoming insolvent. Risk of loss is minimal for the remainder
of receivables due to similar pool arrangements with collateral requirements,
other contracts where funds are withheld, or letters of credit maintained.
Credit risk is also diversified among numerous reinsurers.
Additionally, USF&G has been active in the involuntary market as a servicing
carrier whereby USF&G processes business for a pool but takes no direct
underwriting risk because it is directly reimbursed for the cost of processing
policies and settling any related claims. Servicing carrier receivables of
$661 million, $699 million and $706 million associated with this business are
separately disclosed in the Consolidated Statement of Financial Position at
December 31, 1996, 1995 and 1994, respectively.
Effective August 1, 1996, F&G Life entered into a coinsurance contract with an
unaffiliated life insurance company to cede a significant portion of F&G Life's
block of single premium deferred annuities (the "broker SPDA block"). As part of
the transaction, F&G Life transferred $932 million of investments and other
assets to the coinsurer, and recorded a reinsurance receivable of $964 million.
The transaction had no material effect on USF&G's 1996 net income. As of the end
of the year, surrender activity under the coinsurance contract had reduced
the broker SPDA block and the related reinsurance receivable balances to
$772 million. At December 31, 1996, 1995 and 1994, F&G Life's reinsurance
receivables totaled $782 million, $4 million and $6 million, respectively.
The effect of reinsurance on USF&G's premiums and losses was as follows:
1996
Premiums Losses Unpaid Unearned
(in millions) Written Earned Incurred Losses Premiums
--------------------------------------------------
Property/Casualty:
Direct $2,401 $2,346 $1,721 $4,614 $ 991
Assumed 621 609 372 1,418 122
--------------------------------------------------
Gross 3,022 2,955 2,093 6,032 1,113
Ceded (383) (369) (225) (987) (120)
--------------------------------------------------
Net 2,639 2,586 1,868 5,045 993
Life N/A 145 313 3,552 N/A
--------------------------------------------------
Total $2,639 $2,731 $2,181 $8,597 $ 993
--------------------------------------------------
1995
Premiums Losses Unpaid Unearned
(in millions) Written Earned Incurred Losses Premiums
--------------------------------------------------
Property/Casualty:
Direct $2,318 $2,253 $1,607 $4,675 $ 945
Assumed 634 637 436 1,422 110
--------------------------------------------------
Gross 2,952 2,890 2,043 6,097 1,055
Ceded (389) (398) (241) (984) (136)
--------------------------------------------------
Net 2,563 2,492 1,802 5,113 919
Life N/A 174 376 3,719 N/A
--------------------------------------------------
Total $2,563 $2,666 $2,178 $8,832 $ 919
--------------------------------------------------
1994
Premiums Losses Unpaid Unearned
(in millions) Written Earned Incurred Losses Premiums
--------------------------------------------------
Property/Casualty:
Direct $2,303 $2,284 $1,660 $ 4,826 $ 855
Assumed 594 588 407 1,332 113
--------------------------------------------------
Gross 2,897 2,872 2,067 6,158 968
Ceded (508) (516) (323) (1,016) (116)
--------------------------------------------------
Net 2,389 2,356 1,744 5,142 852
Life N/A 152 388 3,804 N/A
--------------------------------------------------
Total $2,389 $2,508 $2,132 $ 8,946 $ 852
--------------------------------------------------
Included in assumed unpaid losses in the preceding tables are $34 million,
$52 million and $86 million related to loss portfolio transfer agreements at
December 31, 1996, 1995 and 1994, respectively. USF&G has not entered into any
such agreements to cede its unpaid losses.
NOTE 13 FINANCIAL GUARANTEES
As of December 31, 1996, USF&G was contingently liable for par value amounts
totaling approximately $113 million on financial guarantee exposures ceded
through reinsurance agreements with a monoline insurance company in which USF&G
formerly had a minority ownership interest.
In addition, USF&G has other financial guarantee obligations where the par value
guaranteed totaled $7 million at December 31, 1996, maturing at various dates
through 2000. USF&G has also committed, in connection with the sale of certain
real estate mortgages, to assumption of the first $15 million in losses, if any,
that would arise as a result of default on multi-family mortgages securitized as
mortgage-backed securities.
NOTE 14 LEGAL CONTINGENCIES
USF&G's insurance subsidiaries are routinely engaged in litigation in the normal
course of their businesses, including defending claims for punitive damages. As
insurers, they defend third-party claims brought against their insureds, as well
as defend themselves against first-party and coverage claims. Additionally,
contingencies may arise from insurance regulatory matters and regulatory
litigation matters (refer to Note 14.2).
In the opinion of management, such contingencies and the contingencies described
below are not expected to have a material adverse effect on USF&G's consolidated
financial position, although it is possible that the results of operations in a
particular quarter or annual period would be materially affected by an
unfavorable outcome.
14.1. Workers' compensation litigation
A series of class actions have been filed against the National Council on
Compensation Insurance ("NCCI"), the insurance companies which served as
servicing carriers in various states, and the National Workers' Compensation
Reinsurance Pool ("NWCRP"). The complaints generally allege that the defendants
conspired to fix servicing carrier fees at unreasonably high and noncompetitive
levels thereby allegedly causing inflated deficits in the voluntary market,
excessive expansion of the residual market and excessive contraction of the
voluntary market. The plaintiffs generally seek unspecified compensatory and
punitive damages and in some cases civil penalties, treble damages under state
antitrust laws, and temporary and permanent injunctive relief. Plaintiffs'
counsel in these cases have, from time to time, indicated that similar cases may
be filed in other states. USF&G believes that it has meritorious defenses to
each of the class actions and has determined to defend the actions vigorously.
Each of the currently pending cases is described below.
North Carolina: On November 24, 1993, N.C. Steel, Inc., and six other North
Carolina employers filed a class action captioned N.C. Steel, Inc., et al., v.
National Council on Compensation Insurance, et al., in the General Court of
Justice, Superior Court Division, Wake County, North Carolina against the NCCI,
North Carolina Rate Bureau, USF&G and eleven other insurance companies which
served as servicing carriers for the North Carolina involuntary workers'
compensation market. On January 20, 1994, the plaintiffs filed an amended
complaint seeking to certify a class of all employers who purchased workers'
compensation insurance in the State of North Carolina after November 24, 1989.
On February 14, 1995, the trial court granted the defendants' motion to dismiss
the complaint. The plaintiffs appealed, and on July 16, 1996, the North Carolina
Court of Appeals affirmed the dismissal of the plaintiffs' first claim for
relief, which is premised on alleged excessive rates, but reversed the trial
court's decision to dismiss the plaintiffs' second claim for relief, which is
premised on employers allegedly being improperly shifted from the voluntary
market to the assigned risk market as a result of stricter underwriting caused
by high residual market burdens. The North Carolina Supreme Court has agreed to
review both decisions. A hearing is set for March 18, 1997.
South Carolina: On August 22, 1994, the Attorney General of the State of South
Carolina filed a suit captioned State of South Carolina, County of Greenville,
et al. v. National Council on Compensation Insurance, et al., in the County of
Greenville, South Carolina against the NCCI, the NWCRP, USF&G and seven other
insurance companies which served as servicing carriers for the South Carolina
involuntary workers' compensation market. The Attorney General alleges that the
conspiracy occurred for an unspecified period of time prior to January 1994.
Discovery is underway in the case.
Alabama: On September 14, 1994, three Alabama employers filed a class action
captioned Four Way Plant Farm, Inc., et al., v. National Council on Compensation
Insurance, et al., in the Circuit Court of Bullock County, Alabama against the
NCCI, the NWCRP, USF&G and numerous other insurance companies which served as
servicing carriers for the Alabama involuntary workers' compensation market. The
parties to the litigation have reached a settlement agreement which requires the
defendants to seek approval from the Alabama Insurance Department for changes in
the Alabama workers' compensation system designed to facilitate the depopulation
of the Alabama workers' compensation assigned risk market. In addition, the
settlement calls for the establishment of funding of a special committee to
study ways to improve the management and operation of the Alabama workers'
compensation assigned risk plan, and payment of attorneys fees. The settlement
was approved by the court on December 19, 1996 and the impact on USF&G was
immaterial.
Kansas: On October 7, 1996, a Kansas employer filed a class action captioned
Amundson & Associates Art Studies, Ltd., et al., v. National Council on
Compensation Insurance, et al., in the District Court of Wyndotte County, Kansas
against the NCCI and the insurance companies which acted as servicing carriers
for the Kansas involuntary workers' compensation market. The defendants removed
the case to the United States District Court for the District of Kansas and the
plaintiff has filed a motion to remand the case to the state court. No discovery
has yet occurred.
Tennessee: On December 31, 1996, four Tennessee employers filed a class action
captioned Jo Ann Forman, Inc., et al., v. National Council on Compensation
Insurance, et al., in the Chancery Court of Marion County, Tennessee against the
NCCI, NWCRP and the insurance companies which acted as servicing carriers for
the Tennessee involuntary workers' compensation market. No discovery has yet
occurred.
14.2. Regulation
USF&G's insurance subsidiaries are subject to extensive regulatory oversight in
the jurisdictions where they do business. From time to time, the insurance
regulatory framework has been the subject of increased scrutiny. At any one time
there may be numerous initiatives within state legislatures or state insurance
departments to alter and, in many cases, increase state authority to regulate
insurance companies and their businesses. It is not possible to predict the
future impact of increasing regulation on USF&G's operations. (Additional
information regarding regulatory matters may be found in Section 8, "Legal
Contingencies and Regulation", of Management's Discussion and Analysis of
Financial Condition and Results of Operations.)
NOTE 15 INTERIM FINANCIAL DATA (UNAUDITED)
Quarter
(in millions except per share data) First Second Third Fourth*
-------------------------------------------
Revenues 1996 $867 $858 $871 $902
1995 818 856 885 900
1994 786 812 835 877
-------------------------------------------
Net income 1996 $ 57 $ 67 $ 35 $102
1995 49 46 49 65
1994 23 74 76 64
-------------------------------------------
Primary earnings
per common share** 1996 $.43 $.52 $.26 $.84
1995 .39 .35 .37 .52
1994 .11 .66 .67 .54
-------------------------------------------
Fully diluted earnings
per common share** 1996 $.42 $.50 $.26 $.79
1995 .36 .33 .35 .48
1994 .11 .56 .58 .47
-------------------------------------------
*The fourth quarter 1996, 1995 and 1994 results reflect tax benefits of
$3 million, $15 million and $210 million, respectively (refer to Note 11). The
fourth quarter 1996 and 1994 results also reflect $(30) million and $183 million
in facilities exit costs/(sublease income) as discussed in Note 1.11.
** The sum of quarterly income per share amounts may not equal the full year's
amount due to stock issuances, repurchases and redemptions during presented
periods.
NOTE 16 INFORMATION ON BUSINESS SEGMENTS
USF&G's principal business segments are property/casualty insurance and life
insurance.
16.1. Assets
The assets of the insurance operations are primarily investments. Foreign
assets, consisting primarily of the assets of Afianzadora (refer to Note 1.12),
are not material. Assets of the business segments were as follows:
At December 31
(in millions) 1996 1995 1994
----------------------------
Property/casualty insurance $10,099 $ 9,967 $ 9,487
Life insurance 4,204 4,591 4,575
Noninsurance operations and eliminations 104 93 (82)
----------------------------
Consolidated total $14,407 $14,651 $13,980
----------------------------
16.2. Operations
USF&G's insurance business is geographically diversified throughout North
America. Reinsurance and noninsurance operations are located in the United
States, Europe and various foreign countries. Foreign operations, in total,
are not material.
During 1995, USF&G realigned its property/casualty product segments, resulting
in the formation of the Commercial Insurance Group ("CIG") and the Family and
Business Insurance Group ("FBIG"). The business written by these groups had
previously been included, on different bases, in the Commercial Lines and
Personal Lines segments. Specialty businesses - Discover Re, F&G Re and Surety -
were virtually unaffected by the change. Summarized financial information for
the business segments is as follows:
Income (Loss) from
Operations Before
Revenues Income Taxes***
(in millions) 1996 1995 1994* 1996 1995 1994*
--------------------------------------------------
Property/Casualty Insurance
Underwriting Results:
CIG $ 954 $ 876 $ -- $ (82) $ (97) $ --
FBIG 989 982 -- (147) (119) --
Commercial lines -- -- 1,206 -- -- (183)
Personal lines -- -- 626 -- -- (62)
Discover Re 22 25 22 2 1 --
F&G Re 480 490 395 52 43 40
Surety 141 119 107 8 16 3
--------------------------------------------------
Property/casualty
underwriting results 2,586 2,492 2,356 (167) (156) (202)
Net investment income** 441 438 429 441 438 429
Net realized gains (losses)
on investments** 63 14 (9) 63 14 (9)
Other 10 12 10 (106) (42) 1
--------------------------------------------------
Total property/casualty
insurance 3,100 2,956 2,786 231 254 219
--------------------------------------------------
Life Insurance:
Premium income 145 174 152
Net investment income 269 306 317
Net realized gains (losses)
on investments (57) 1 --
Other -- 1 1
--------------------------------------------------
Total life insurance 357 482 470 (8) 28 14
--------------------------------------------------
Noninsurance operations
and eliminations 41 21 54 36 (87) (276)
--------------------------------------------------
Consolidated total $3,498 $3,459 $3,310 $ 259 $ 195 $ (43)
--------------------------------------------------
*CIG and FBIG did not exist in 1994; therefore, information is disclosed under
the previous business lines. Comparable information for 1995 is: Revenues -
Commercial Lines, $1,223 million, Personal Lines, $635 million; Income (Loss)
from Operations Before Income Taxes - Commercial Lines, $(139) million, Personal
Lines, $(77) million.
**Net investment income and net realized gains (losses) on investments are not
allocated to property/casualty categories.
***Income (loss) from operations before income taxes for 1996 and 1994 included
facilities exit (costs)/income by segment as follows: Property/casualty,
$(28) million and $28 million, respectively; and Noninsurance operations,
$70 million and $(211) million, respectively.
<PAGE>
USF&G CORPORATION Report of Independent Auditors
Board of Directors
USF&G Corporation
We have audited the accompanying consolidated statement of financial position of
USF&G Corporation as of December 31, 1996, 1995 and 1994, and the related
consolidated statements of operations, cash flows and shareholders' equity for
the years then ended. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of USF&G Corporation
at December 31, 1996, 1995 and 1994, and the consolidated results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ERNST & YOUNG LLP
Baltimore, Maryland
February 21, 1997
<PAGE>
USF&G CORPORATION Directors and Committees of the Board
Directors
H. Furlong Baldwin
Chairman of the Board and
Chief Executive Officer
Mercantile Bankshares Corporation
1981*
Michael J. Birck
President and Chief Executive Officer
Tellabs, Inc.
1993*
Norman P. Blake, Jr.
Chairman of the Board, President,
and Chief Executive Officer
USF&G Corporation
1990*
George L. Bunting, Jr.
President
Bunting Management Group
1981*
Robert E. Davis
Managing Director
Axess Corporation
1990*
Kenneth M. Duberstein
Chairman and Chief Executive Officer
The Duberstein Group
1996*
Dale F. Frey
Retired Chairman of the Board
and President
General Electric Investment Corporation
1991*
Robert E. Gregory, Jr.
Chairman of the Board and
Chief Executive Officer
London Fog Corporation
1988*
Robert J. Hurst
Vice Chairman
Goldman, Sachs & Co.
1988*
Dr. Wilbur G. Lewellen
Herman C. Krannert
Distinguished Professor of Management
Purdue University
1992*
Henry A. Rosenberg, Jr.
Chairman of the Board and
Chief Executive Officer
Crown Central Petroleum Corporation
1981*
Larry P. Scriggins
Partner
Piper & Marbury, L.L.P.
1981*
Anne Marie Whittemore
Partner
McGuire Woods Battle & Boothe, L.L.P.
1993*
R. James Woolsey
Partner
Shea & Gardner
1995*
Advisory Member of the Board
Clay Jackson
Chairman
USF&G National Agency Council
President
Cooper, Love & Jackson Insurance
Agency, Inc.
1996*
*Year of original election.
Committees of the Board
Executive Committee
Norman P. Blake, Jr.
Chairman
H. Furlong Baldwin
George L. Bunting, Jr.
Dale F. Frey
Robert E. Gregory, Jr.
Robert J. Hurst
Finance Committee
H. Furlong Baldwin
Chairman
Dale F. Frey
Wilbur G. Lewellen
Larry P. Scriggins
Anne Marie Whittemore
R. James Woolsey
Audit Committee
Robert E. Gregory, Jr.
Chairman
Michael J. Birck
Robert E. Davis
Dale F. Frey
Henry A. Rosenberg, Jr.
R. James Woolsey
Compensation Committee
George L. Bunting, Jr.
Chairman
Michael J. Birck
Robert E. Davis
Robert E. Gregory, Jr.
Wilbur G. Lewellen
Henry A. Rosenberg, Jr.
Nominating Committee
Robert J. Hurst
Chairman
H. Furlong Baldwin
George L. Bunting, Jr.
Robert E. Davis
Larry P. Scriggins
Anne Marie Whittemore
<PAGE>
USF&G CORPORATION Executive Management Committee
EXECUTIVE MANAGEMENT COMMITTEE
Norman P. Blake, Jr.
Chairman, President, and Chief Executive Officer
[PHOTOS - SEE APPENDIX TO ELECTRONIC FORMAT DOCUMENT]
<PAGE>
USF&G CORPORATION Office Locations
USF&G Corporation
Home Office
Baltimore, Maryland
(410) 547-3000
Claim Reception Center
Tampa, Florida
(813) 663-3000
COMMERCIAL INSURANCE GROUP
Northeast Region
Blue Bell, Pennsylvania
(215) 540-2700
Framingham, Massachusetts
(508) 270-0015
Hartford, Connecticut
(914) 251-2300
Purchase, New York
(914) 251-2300
Syracuse, New York
(315) 449-5100
Mid-Atlantic Region
Baltimore, Maryland
(410) 578-2000
Charleston, West Virginia
(304) 344-1692
Columbus, Ohio
(614) 793-1500
Harrisburg, Pennsylvania
(717) 671-8001
Pittsburgh, Pennsylvania
(412) 261-2550
Richmond, Virginia
(804) 747-0300
Southeast Region
Atlanta, Georgia
(770) 390-5500
Charlotte, North Carolina
(704) 544-0400
Jackson, Mississippi
(601) 982-5555
Louisville, Kentucky
(502) 429-7000
Meridian, Mississippi
(601) 693-1731
Nashville, Tennessee
(615) 370-8400
Tampa, Florida
(813) 289-4589
Central Region
Chicago, Illinois
(630) 472-9030
Dallas, Texas
(972) 386-4542
Des Moines, Iowa
(515) 223-5700
Detroit, Michigan
(810) 643-6433
Indianapolis, Indiana
(317) 267-2700
Kansas City, Kansas
(913) 661-9700
Milwaukee, Wisconsin
(414) 860-0479
Oklahoma City, Oklahoma
(405) 843-7300
St. Louis, Missouri
(314) 966-3416
West Region
Denver, Colorado
(303) 812-9000
Helena, Montana
(406) 442-2270
Phoenix, Arizona
(602) 864-2525
Portland, Oregon
(503) 684-0880
Salt Lake City, Utah
(801) 269-5656
Seattle, Washington
(206) 285-3636
Walnut Creek, California
(510) 942-0363
FAMILY AND BUSINESS INSURANCE GROUP
Center for Agency Services
Atlanta, Georgia
(770) 390-5876
Baltimore, Maryland
(410) 998-3164
Denver, Colorado
(303) 812-9616
Victoria Financial
Cleveland, Ohio
(216) 461-3461
SPECIALTY BUSINESSES
Discover Re Companies
Farmington, Connecticut
(860) 674-2660
Pittsburgh, Pennsylvania
(800) 945-2070
San Francisco, California
(415) 543-8111
F&G Re
Morristown, New Jersey
(201) 898-9393
Ashley Palmer Limited
London, England
44-171-488-0103
Surety Group
Atlanta, Georgia
(770) 390-5603
Baltimore, Maryland
(410) 578-2020
Birmingham, Alabama
(205) 995-4175
Charlotte, North Carolina
(704) 544-7165
Chicago, Illinois
(414) 860-3190
Denver, Colorado
(303) 812-9015
Harrisburg, Pennsylvania
(717) 671-7420
Indianapolis, Indiana
(317) 267-2710
Jackson, Mississippi
(601) 987-0830
Kansas City, Kansas
(913) 661-3435
Quincy, Massachusetts
(617) 376-4800
San Antonio, Texas
(210) 321-2202
Afianzadora Insurgentes
Mexico City, Mexico
5-25-726-9223
Northern Indemnity
Toronto, Ontario, Canada
(416) 214-1878
F&G LIFE
Baltimore, Maryland
(888) 697-5433 (LIFE)
Thomas Jefferson Life
Purchase, New York
(800) 778-7735
SUBSIDIARIES
Falcon Asset Management
Baltimore, Maryland
(410) 205-6400
USF&G Realty Advisors
Baltimore, Maryland
(410) 625-5500
<PAGE>
USF&G CORPORATION Officers
USF&G Insurance
President
Norman P. Blake, Jr.
COMMERCIAL INSURANCE GROUP
President
Glenn W. Anderson
Senior Vice President
Anita Devan
Vice President
Robert A. Bernatchez
Richard P. Campagna
Alan K. Crater
Gregor Doman
Jeff J. Gans
Joseph J. George
Ronald L. Goldberg
Marr T. Haack
Henry J. Jacobs
Kevin M. Nish
Thomas O. Ramsbacher
Field Development and Operations
Executive Vice President
Stephen W. Lilienthal
Vice President
Charles C. Baldwin, Jr.
Steven A. LaShier
Regional Vice President
William R. Cossari - Purchase
Janet D. Frank - Denver
Hernando Madronero - Chicago
M. Lee Patkus - Baltimore
L. Bud Roberts - St. Louis
Louis R. Snage, Jr. - Charlotte
Marita Zuraitis - Atlanta
Branch Vice President
Paul H. Beil - Columbus
Anthony D. Everett - Jackson
R. Paul Feemster - Louisville
Larry W. Fitch - Oklahoma City
Charles E. Foura - Nashville
Derrick D. Iseler - Detroit
Charles W. Kincaid, Jr. - Charleston
Douglas McDonough - Richmond
John Murphy - Syracuse
Brian F. Quinn - Walnut Creek
Richard W. Ramell - Harrisburg
Barry Seago - Chicago
Robert R. Southard - Tampa
John A. Umberger - Delaware Valley
Melvin R. Workman - Salt Lake City
FAMILY AND BUSINESS INSURANCE GROUP
President
Gary C. Dunton
Senior Vice President
James R. Lewis
Kim B. Rich
Vice President
Mehran Assadi
Timothy F. Daniels
Glen E. Dye
F. Walker Garrett
Earnest E. Hines
Frank J. Kotarba
Roy G. Shrum
David D. Toombs
Victoria Financial
President
Robert W. Mueller
Vice President
Cynthia Cardwell
Michael W. Dietry
Barry LaRue
Joseph Metz
Katherine Nolan
Larry Polena
Mark VanDam
Stuart Willner
SPECIALTY BUSINESSES
Discover Re Companies
Chairman and Chief Executive Officer
George L. Estes III
President and Chief Operating Office
Scott P. Doyle
Executive Vice President -
Chief Financial Officer
Albert F. Collings
Senior Vice President
John J. Bennett
Robert D. Byler
Richard E. Cartland
Vice President
William Taylor Budde
Kenneth A. Cormier
Nancy B. Foster
Hale Holden III
Rhonda K. Miller
Susan D. Putterman
Russell J. Renvyle
Robert D. Schultz
F&G Re
President
John R. Berger
Executive Vice President
Dwight R. Evans
Timothy J. Olson
Wayne C. Paglieri
Senior Vice President
Thomas G. Devine, Sr.
Peter A. Dodge
Roland W. Jackson
Charles B. Penruddocke
John F. Rathgerber
Gregory J. Richardson
David Skurnick
Vice President/Counsel
Andrew Nosal
Ashley Palmer Limited
Chairman
John R. Berger
Deputy Chairman
Martin Ashley
Surety Group
President
Robert J. Lamendola
Senior Vice President
Frederick J. Gurba
Vice President
Peter W. Carman
David L. Hussey - Eastern Division
John F. Phinney - Western Division
Brent E. Snelgrove - Western Division
Gary A. Wilson
Afianzadora Insurgentes
Chief Executive Officer
Carlos Abascal
Northern Indemnity, Inc.
Vice President
Patrick Webb
F&G LIFE
President
Harry N. Stout
Vice President
Gary F. Haynes
Timothy C. Nicholson
Michel Perreault
Bruce H. Saul
Mark E. Singleton
OPERATIONS
Claim
Executive Vice President
Kenneth E. Cihiy
Vice President
Robert E. Burnham
Robert S. Kines
Thomas W. Salinsky
Catherine E. Smith
Charles M. Stapleton
Thomas M. Trezise
Finance
Executive Vice President-
Chief Financial Officer
Dan L. Hale
Vice President
Francis X. Bossle
Thomas A. Bradley
G. Jay Erbe, Jr.
Ronald C. Mishler
Patricia J. Scarff
James E. Stangroom
Larry Walters
Barbara L. Yewell
Human Resources
Executive Vice President
John A. MacColl
Vice President
Charles Conley
David James Dowling
Franco Moscardi
Chris Pettingill
Shalom Saar
Information Services
Executive Vice President -
Chief Information Officer
Thomas K. Lewis, Jr.
Vice President
Michelle G. Benvenga
James M. Ditmore
James C.R. Graham
Kevin B. Higgins
Albert E. Mazei
Legal
Executive Vice President -
General Counsel
John A. MacColl
Vice President
John A. Andryszak
John D. Corse
J. Kendall Huber
Rosemary Quinn
John F. Simanski
Strategic Planning/
Corporate Marketing
Executive Vice President
Andrew A. Stern
Vice President
Kerrie Burch-DeLuca
William Glenn Kenney
John M. Lummis
Walter L. Wdowiak
SUBSIDIARIES
Falcon Asset Management
Chairman
John C. Sweeney
President
Geoffrey C. Getman
Executive Vice President
Salvatore Correnti
Senior Vice President-
Chief Financial Officer
John C. Barber
USF&G Realty Advisors
President
Charles R. Werhane
Vice President
Duane M. Danielsen
Jon B. Savage
Joseph A. Wesolowski
<PAGE>
USF&G CORPORATION Shareholder's Information
Corporate Headquarters
6225 Smith Avenue
Baltimore, Maryland 21209
(410) 547-3000
Annual Meeting
The Annual Meeting of Shareholders will be held Wednesday, May 21, 1997, at 9:00
a.m. at the Sheraton Baltimore North, 903 Dulaney Valley Road, Towson, Maryland.
Reports Filed with the Securities and Exchange Commission
A copy of USF&G Corporation's Annual Report on Form 10-K or Quarterly Reports on
Form 10-Q, as filed with the Securities and Exchange Commission, may be obtained
without charge upon request to John F. Hoffen, Jr., corporate secretary, at the
corporate headquarters.
Stock Exchange Listing
Common Stock: USF&G Corporation's common stock (ticker: FG) is listed on the New
York Stock Exchange. The common stock appears in the NYSE Composite Listing as
USFG. The common stock is also listed on the Pacific Stock Exchange, the London
Stock Exchange, and the Swiss Stock Exchanges.
Preferred Stock: USF&G Corporation's $4.10 Series A Convertible Exchangeable
Preferred Stock (ticker: FGpA) is listed on the New York Stock Exchange. The
preferred stock appears in the NYSE Composite Listing as USFGpf, and is also
listed on the Pacific Stock Exchange.
Transfer Agent/Registrar
The Bank of New York is transfer agent, registrar, and dividend disbursing agent
for USF&G Corporation's common and preferred stock. Inquiries regarding stock
transfer requirements, dividend payments, the Dividend Reinvestment and Stock
Purchase Plan, or address changes should be addressed to:
The Bank of New York
P.O. Box 11258
Church Street Station
New York, New York 10286
Attention: Shareholders' Relations Department
1-800-524-4458
Stock and Dividend Information
The following table presents 1995 and 1996 data on the sale prices of USF&G
Corporation's common stock on the New York Stock Exchange Composite Listing by
quarter, and the dividends paid per share of common stock. At February 28, 1997,
there were 21,865 registered shareholders and the closing price was $22.50 per
share.
Sale Price
High Low Dividends Paid
--------------------------------------
1995
First quarter $15 1/2 $13 3/8 $.05
Second quarter 17 1/4 13 3/4 .05
Third quarter 19 1/2 15 .05
Fourth quarter 19 1/2 16 .05
--------------------------------------
1996
First quarter $17 1/2 $14 1/4 $.05
Second quarter 16 5/8 15 .05
Third quarter 18 5/8 15 .05
Fourth quarter 21 3/4 17 3/4 .05
--------------------------------------
USF&G Shareholder Direct 1-800-545-USFG
USF&G provides 24-hour, toll-free access to the latest information about the
corporation at 1-800-545-USFG (8734). Shareholders can listen to USF&G
Corporation's financial information or request a copy to be sent by fax or
mail. This service replaced our traditional printed quarterly report, providing
faster, more convenient access to the latest news about USF&G. A site on the
Internet is also available with the same information at
http://www.shareholder.com/usfg.
Additionally, USF&G's corporate website will be available later this year at
http://www.usfg.com.
For Additional Information
Investors and analysts requesting additional information regarding USF&G
Corporation may dial toll-free 1-800-335-USFG (8734), or call directly:
Larry Walters
Vice President-Investor Relations
(410) 205-5300
Independent Auditors
Ernst & Young LLP
One North Charles
Baltimore, Maryland 21201
The financial section is printed on recycled paper
Design: USF&G Design Team
Cover photography: Cliff Riedinger/Alaska Stock Images
Executive photography: Paul Fetters
Printing: S&S Graphics, Inc.
USF&G CORPORATION Exhibit 21 - Subsidiaries of the Registrant
Name of Subsidiary State of Incorporation
United States Fidelity and Guaranty Company Maryland
Fidelity and Guaranty Life Insurance Company Maryland
The names of other subsidiaries have been omitted because, when considered in
the aggregate as a single subsidiary, they would not constitute a significant
subsidiary as defined by Regulation S-X.
<PAGE>
USF&G CORPORATION Exhibit 23 - Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of the USF&G Corporation of our report dated February 21, 1997, included in the
1996 Annual Report to the Shareholders of USF&G Corporation.
Our audit also included the financial statement schedules of USF&G Corporation
listed in Item 14 (a). These schedules are the responsibility of the
Corporation's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth herein.
We also consent to the incorporation by reference in the Registration Statement
Number 33-20449, 33-9405, 33-33271, 33-21132, 33-51859, 33-63333, 33-65471 and
333-13685 on Form S-3, and Number 2-72026, 2-61626, 2-98232, 33-16111, 33-38113,
33-35095, 33-43132, 33-45664, 33-45665, 33-61965, 33-55667, 33-55669, 33-55671,
33-59535, 33-64839 and 333-04359 on Form S-8, of USF&G Corporation, of our
report dated February 21, 1997, with respect to the consolidated financial
statements incorporated herein by reference, and our report included in the
preceding paragraph with respect to the financial statement schedules included
in this Annual Report (Form 10-K) of USF&G Corporation.
Baltimore, Maryland
March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 8164
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 16
<MORTGAGE> 406
<REAL-ESTATE> 554
<TOTAL-INVEST> 10076
<CASH> 73
<RECOVER-REINSURE> 1576
<DEFERRED-ACQUISITION> 456
<TOTAL-ASSETS> 14407
<POLICY-LOSSES> 9573
<UNEARNED-PREMIUMS> 1113
<POLICY-OTHER> 11
<POLICY-HOLDER-FUNDS> 91
<NOTES-PAYABLE> 482
100
200
<COMMON> 286
<OTHER-SE> 1383
<TOTAL-LIABILITY-AND-EQUITY> 14307
2731
<INVESTMENT-INCOME> 705
<INVESTMENT-GAINS> 44
<OTHER-INCOME> 18
<BENEFITS> 2181
<UNDERWRITING-AMORTIZATION> 707
<UNDERWRITING-OTHER> 337
<INCOME-PRETAX> 259
<INCOME-TAX> (2)
<INCOME-CONTINUING> 261
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 261
<EPS-PRIMARY> 2.05
<EPS-DILUTED> 1.93
<RESERVE-OPEN> 5113
<PROVISION-CURRENT> 2030
<PROVISION-PRIOR> (162)
<PAYMENTS-CURRENT> 764
<PAYMENTS-PRIOR> 1190
<RESERVE-CLOSE> 5027
<CUMULATIVE-DEFICIENCY> (162)
</TABLE>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - ANALYSIS OF LOSSES AND LOSS EXPENSES
Notes to Schedule P
(1) The Parts of Schedule P:
Part 1 - detailed information on losses and loss expenses.
Part 2 - history of incurred losses and allocated expenses.
Part 3 - history of loss and allocated expense payments.
Part 4 - history of bulk and incurred-but-not reported reserves.
Part 5 - history of claims.
Part 6 - history of premiums earned.
Part 7 - history of loss sensitive contracts.
Schedule P Interrogatories
(2) Lines of business A through M, R, and S are groupings of the lines of
business used on the state page.
(3) Reinsurance A, B, C, and D (lines N to Q) are:
Reinsurance A = nonproportional property (1988 and subsequent)
Reinsurance B = nonproportional liability (1988 and subsequent)
Reinsurance C = financial lines (1988 and subsequent)
Reinsurance D = old Schedule O line 30 (1987 and prior)
(4) Parts 2 and 4 are gross of all discounting, including tabular
discounting. Part 1 is gross of only non-tabular discounting,
which is reported in Columns 31 and 32 of Part 1. The tabular
discount, if any, is reported in the Notes to Financial Statements
which will reconcile Part 1 with Parts 2 and 4.
<TABLE>
<CAPTION>
SCHEDULE P - PART 1 - SUMMARY
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| | Premiums Earned | Loss and Loss Expense Payments
| 1 |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`1.`Prior` | X X X | X X X | X X X | 82,026 | 20,268 | 23,083 | 938 | 7,084
`|`2.`1987` | 4,139,197 | 563,462 | 3,575,735 | 2,342,392 | 405,094 | 184,260 | 17,357 | 105,658
`|`3.`1988` | 4,342,942 | 758,938 | 3,584,004 | 2,465,082 | 540,777 | 187,682 | 16,281 | 108,161
`|`4.`1989` | 4,343,978 | 987,187 | 3,356,791 | 2,698,695 | 671,293 | 184,074 | 16,363 | 107,510
`|`5.`1990` | 4,280,255 | 927,813 | 3,352,442 | 2,475,345 | 620,861 | 206,812 | 19,466 | 123,799
`|`6.`1991` | 3,708,988 | 700,245 | 3,008,743 | 2,005,758 | 388,599 | 168,118 | 12,113 | 78,565
`|`7.`1992` | 3,205,860 | 699,673 | 2,506,187 | 1,927,247 | 584,701 | 139,900 | 15,496 | 56,409
`|`8.`1993` | 3,028,604 | 886,775 | 2,141,829 | 1,361,444 | 356,719 | 102,389 | 10,370 | 41,227
`|`9.`1994` | 2,852,152 | 580,919 | 2,271,233 | 1,239,871 | 176,238 | 65,936 | 4,346 | 41,100
`|10.`1995` | 2,893,067 | 599,372 | 2,293,695 | 1,049,635 | 167,169 | 33,129 | 1,311 | 32,610
`|11.`1996` | 2,925,499 | 471,612 | 2,453,887 | 665,585 | 23,419 | 11,799 | 234 | 18,427
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | 18,313,080 | 3,955,138 | 1,307,182 | 114,275 | 720,550
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| 12 |
| 10 | 11 | |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| 7,017 | 90,920 | X X X |
| 117,146 | 2,221,347 | X X X |
| 123,172 | 2,218,878 | X X X |
| 133,387 | 2,328,500 | X X X |
| 143,917 | 2,185,747 | X X X |
| 150,530 | 1,923,694 | X X X |
| 138,288 | 1,605,238 | X X X |
| 109,624 | 1,206,368 | X X X |
| 98,141 | 1,223,364 | X X X |
| 102,855 | 1,017,139 | X X X |
| 104,678 | 758,409 | X X X |
|--------------|--------------|--------------|
| 1,228,755 | 16,779,604 | X X X |
>-------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`1.`Prior` | 593,806 | 132,796 | 355,039 | 27,293 | 0 | 0 | 148,687 | 3,768
`|`2.`1987` | 74,425 | 14,121 | 90,657 | 16,589 | 0 | 0 | 25,598 | 546
`|`3.`1988` | 126,077 | 49,431 | 115,035 | 27,655 | 0 | 0 | 30,151 | 642
`|`4.`1989` | 150,908 | 69,863 | 128,237 | 28,032 | 0 | 0 | 32,330 | 1,014
`|`5.`1990` | 178,394 | 82,874 | 146,382 | 35,655 | 0 | 0 | 46,584 | 1,451
`|`6.`1991` | 123,436 | 26,130 | 158,868 | 50,110 | 4 | 0 | 50,938 | 1,479
`|`7.`1992` | 143,195 | 33,406 | 184,048 | 99,172 | 78 | 5 | 52,163 | 2,255
`|`8.`1993` | 155,548 | 34,611 | 208,381 | 125,351 | 896 | 9 | 62,965 | 2,443
`|`9.`1994` | 221,644 | 38,945 | 269,501 | 109,078 | 1,012 | 0 | 88,940 | 3,705
`|10.`1995` | 299,402 | 50,347 | 410,580 | 140,231 | 1,772 | 14 | 115,609 | 5,729
`|11.`1996` | 482,237 | 56,772 | 758,515 | 236,471 | 2,383 | 54 | 143,991 | 5,343
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | 2,549,072 | 589,296 | 2,825,243 | 895,637 | 6,145 | 82 | 797,956 | 28,375
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct |
| Anticipated | Unpaid | Unpaid | and Assumed |
|--------------|--------------|--------------|-------------|
| 11,360 | 32,333 | 966,008 | X X X |
| 2,424 | 5,225 | 164,649 | X X X |
| 3,149 | 6,691 | 200,226 | X X X |
| 4,561 | 7,416 | 219,982 | X X X |
| 5,797 | 8,975 | 260,355 | X X X |
| 5,778 | 10,042 | 265,569 | X X X |
| 6,454 | 10,379 | 255,025 | X X X |
| 7,454 | 10,727 | 276,103 | X X X |
| 11,111 | 14,719 | 444,088 | X X X |
| 16,000 | 22,087 | 653,130 | X X X |
| 25,920 | 50,254 | 1,138,740 | X X X |
|--------------|--------------|--------------|-------------|
| 100,008 | 178,848 | 4,843,874 | X X X |
>-------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 95,561 | 6,740
`|`2.`1987` | 2,839,703 | 453,707 | 2,385,996 | 68.6 | 80.5 | 66.7 | 11,714 | 1,350
`|`3.`1988` | 3,053,890 | 634,786 | 2,419,104 | 70.3 | 83.6 | 67.5 | 13,958 | 1,494
`|`4.`1989` | 3,335,047 | 786,565 | 2,548,482 | 76.8 | 79.7 | 75.9 | 15,803 | 1,785
`|`5.`1990` | 3,206,409 | 760,307 | 2,446,102 | 74.9 | 81.9 | 73.0 | 15,316 | 1,860
`|`6.`1991` | 2,667,694 | 478,431 | 2,189,263 | 71.9 | 68.3 | 72.8 | 12,321 | 1,586
`|`7.`1992` | 2,595,298 | 735,035 | 1,860,263 | 81.0 | 105.1 | 74.2 | 7,066 | 1,312
`|`8.`1993` | 2,011,974 | 529,503 | 1,482,471 | 66.4 | 59.7 | 69.2 | 4,641 | 969
`|`9.`1994` | 1,999,764 | 332,312 | 1,667,452 | 70.1 | 57.2 | 73.4 | 4,921 | 952
`|10.`1995` | 2,035,070 | 364,801 | 1,670,269 | 70.3 | 60.9 | 72.8 | 6,866 | 1,070
`|11.`1996` | 2,219,442 | 322,293 | 1,897,149 | 75.9 | 68.3 | 77.3 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 188,167 | 19,118
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
|Inter-Company |--------------#--------------|
| Pooling | 34 | 35 |
|Participation | Losses |Loss Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| X X X | 693,195 | 170,512 |
| 0.0 | 122,658 | 28,927 |
| 0.0 | 150,068 | 34,706 |
| 0.0 | 165,447 | 36,947 |
| 0.0 | 190,931 | 52,248 |
| 0.0 | 193,743 | 57,919 |
| 0.0 | 187,599 | 59,048 |
| 0.0 | 199,326 | 71,167 |
| 0.0 | 338,201 | 100,014 |
| 0.0 | 512,538 | 132,656 |
| 0.0 | 947,509 | 191,231 |
|--------------|--------------|--------------|
| X X X | 3,701,215 | 935,374 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 2 - SUMMARY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#--------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported At Year End ($000 omitted)
| Years in Which |---------------------------#-------------#-------------#-------------#-------------#-------------#------------
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994
|-------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|------------
| | | | | | | | |
`| "1. "`Prior` | 2,685,865 | 2,914,705 | 3,078,031 | 3,369,445 | 3,532,069 | 3,648,857 | 3,762,545 | 3,788,485
`| "2. "`1987` | 2,443,362 | 2,321,867 | 2,235,275 | 2,289,411 | 2,265,771 | 2,290,481 | 2,295,282 | 2,291,267
`| "3. "`1988` | X X X | 2,337,495 | 2,278,162 | 2,398,771 | 2,300,326 | 2,332,719 | 2,314,366 | 2,313,708
`| "4. "`1989` | X X X | X X X | 2,495,094 | 2,473,262 | 2,523,655 | 2,479,795 | 2,478,079 | 2,459,572
`| "5. "`1990` | X X X | X X X | X X X | 2,447,110 | 2,438,560 | 2,415,342 | 2,353,796 | 2,334,848
`| "6. "`1991` | X X X | X X X | X X X | X X X | 2,302,136 | 2,229,647 | 2,105,898 | 2,084,630
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 1,868,197 | 1,771,125 | 1,721,041
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 1,453,142 | 1,413,922
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 1,605,215
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------->--------------------------->------------->------------->------------->------------->------------->------------
`|`12.""Totals
-----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
- - -----------------------------#-----------------------------#
| Development |
- - -#-------------#-------------|--------------#--------------|
| 10 | 11 | 12 | 13 |
| 1995 | 1996 | One Year | Two Year |
- - -|-------------|-------------|--------------|--------------|
| | | | |
| 3,774,940 | 3,793,213 | 18,273 | 4,728 |
| 2,269,358 | 2,274,636 | 5,278 | (16,631)|
| 2,307,385 | 2,301,838 | (5,547)| (11,870)|
| 2,443,377 | 2,421,938 | (21,439)| (37,634)|
| 2,336,079 | 2,306,408 | (29,671)| (28,440)|
| 2,072,305 | 2,037,655 | (34,650)| (46,975)|
| 1,726,587 | 1,717,202 | (9,385)| (3,838)|
| 1,391,665 | 1,364,915 | (26,750)| (49,007)|
| 1,589,979 | 1,557,122 | (32,857)| (48,093)|
| 1,559,165 | 1,548,197 | (10,968)| X X X |
| X X X | 1,742,349 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
| (147,715)| (237,760)|
- - ----------------------------->-------------->-------------->
SCHEDULE P - PART 3 - SUMMARY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#--------------------------------------------------------------------------------------------------------------
| |
| 1 | Cumulative Paid Losses and Allocated Expenses At Year End ($000 omitted)
| Years in Which |-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994
| | | | | | | | |
|-------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|------------
`| "1. "`Prior` | 000 | 793,736 | 1,377,455 | 1,794,501 | 2,074,605 | 2,267,346 | 2,435,408 | 2,582,482
`| "2. "`1987` | 753,718 | 1,261,685 | 1,531,766 | 1,729,926 | 1,896,736 | 1,975,924 | 2,029,617 | 2,066,069
`| "3. "`1988` | X X X | 733,068 | 1,265,507 | 1,548,698 | 1,761,747 | 1,901,785 | 1,977,419 | 2,036,170
`| "4. "`1989` | X X X | X X X | 776,775 | 1,370,738 | 1,697,232 | 1,896,073 | 2,026,575 | 2,117,065
`| "5. "`1990` | X X X | X X X | X X X | 757,672 | 1,310,696 | 1,588,607 | 1,787,224 | 1,912,926
`| "6. "`1991` | X X X | X X X | X X X | X X X | 733,298 | 1,187,454 | 1,441,285 | 1,610,865
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 624,810 | 1,017,399 | 1,215,793
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 507,258 | 809,923
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 555,361
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -----------------------------#--------------#--------------#
| 12 | 13 |
| Number of | Number of |
- - -#-------------#-------------| Claims | Claims |
| 10 | 11 | Closed With | Closed |
| 1995 | 1996 | Loss | Without Loss |
| | | Payment | Payment |
- - -|-------------|-------------|--------------|--------------|
| 2,703,699 | 2,787,603 | X X X | X X X |
| 2,090,331 | 2,104,201 | X X X | X X X |
| 2,074,061 | 2,095,706 | X X X | X X X |
| 2,162,957 | 2,195,113 | X X X | X X X |
| 1,995,814 | 2,041,830 | X X X | X X X |
| 1,709,431 | 1,773,164 | X X X | X X X |
| 1,365,159 | 1,466,950 | X X X | X X X |
| 985,485 | 1,096,744 | X X X | X X X |
| 926,978 | 1,125,223 | X X X | X X X |
| 538,977 | 914,286 | X X X | X X X |
| X X X | 653,732 | X X X | X X X |
- - ->------------->------------->-------------->-------------->
SCHEDULE P - PART 4 - SUMMARY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#---------------------------------------------------------------------------------------------------------------
| 1 | Bulk and Incurred But Not Reported Reserves on Losses and Allocated Expenses at Year End ($000 omitted)
| Years in Which |-------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------
| Losses | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Were Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994
|-------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------
| "1. " "`Prior` | 1,071,209 | 739,999 | 541,197 | 584,142 | 553,930 | 611,128 | 701,447 | 570,304
| "2. " "`1987` | 1,144,161 | 651,530 | 386,103 | 315,656 | 175,577 | 168,827 | 164,297 | 129,230
| "3. " "`1988` | X X X | 1,043,788 | 588,604 | 504,738 | 257,562 | 223,953 | 183,152 | 150,266
| "4. " "`1989` | X X X | X X X | 1,092,870 | 644,817 | 460,846 | 312,733 | 250,602 | 195,553
| "5. " "`1990` | X X X | X X X | X X X | 1,070,678 | 665,617 | 477,407 | 320,209 | 227,926
| "6. " "`1991` | X X X | X X X | X X X | X X X | 956,428 | 642,639 | 374,385 | 259,342
| "7. " "`1992` | X X X | X X X | X X X | X X X | X X X | 731,477 | 422,910 | 251,411
| "8. " "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 568,310 | 347,563
| "9. " "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 627,304
|`10. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|`11. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
- - -------------------->------------->------------->------------->------------->------------->------------->------------->-------------
<C> <C>
- - -----------------------------#
|
#-------------#--------------|
| 10 | 11 |
| 1995 | 1996 |
|-------------|--------------|
| 508,339 | 486,771 |
| 111,419 | 103,490 |
| 129,181 | 119,736 |
| 169,140 | 136,269 |
| 208,111 | 160,849 |
| 214,859 | 163,002 |
| 194,118 | 136,532 |
| 227,142 | 145,180 |
| 382,906 | 247,158 |
| 592,048 | 382,315 |
| X X X | 660,691 |
>------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1A - HOMEOWNERS/FARMOWNERS
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | 81 | 0 | 31 | 0 | 55
`|`2.`1987` | 244,766 | 5,446 | 239,320 | 121,907 | 445 | 3,879 | 62 | 1,566
`|`3.`1988` | 228,323 | 4,737 | 223,586 | 120,902 | 12 | 4,140 | 66 | 2,367
`|`4.`1989` | 221,373 | 4,005 | 217,368 | 155,639 | 8,745 | 4,675 | 274 | 2,266
`|`5.`1990` | 221,970 | 6,038 | 215,932 | 134,367 | (49)| 6,397 | 51 | 1,618
`|`6.`1991` | 223,033 | 5,059 | 217,974 | 158,479 | 351 | 5,329 | 103 | 2,046
`|`7.`1992` | 205,577 | 9,150 | 196,427 | 251,252 | 73,420 | 5,968 | 2,692 | 1,374
`|`8.`1993` | 174,684 | 19,201 | 155,483 | 107,618 | 8,201 | 2,554 | 79 | 1,098
`|`9.`1994` | 165,494 | 31,054 | 134,440 | 131,015 | 11,016 | 1,810 | 79 | 751
`|10.`1995` | 164,830 | 15,154 | 149,676 | 95,222 | 3,817 | 1,329 | 32 | 641
`|11.`1996` | 173,031 | 15,882 | 157,149 | 113,784 | 3 | 641 | (3)| 212
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | 1,390,266 | 105,961 | 36,753 | 3,435 | 13,994
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 5 | 117 | X X X |
| 13,898 | 139,177 | 62,513 |
| 12,661 | 137,625 | 59,163 |
| 15,975 | 167,270 | 75,064 |
| 16,844 | 157,606 | 66,790 |
| 18,356 | 181,710 | 74,386 |
| 18,937 | 200,045 | 65,393 |
| 15,917 | 117,809 | 55,152 |
| 15,326 | 137,056 | 59,277 |
| 11,176 | 103,878 | 42,469 |
| 19,024 | 133,449 | 60,354 |
|--------------|--------------|--------------|
| 158,119 | 1,475,742 | X X X |
>-------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 420 | 5 | 120 | 0 | 0 | 0 | 517 | 8
`|`2.`1987` | 341 | 0 | 868 | 0 | 0 | 0 | 98 | 0
`|`3.`1988` | 335 | 0 | 406 | 0 | 0 | 0 | 166 | 1
`|`4.`1989` | 492 | 0 | 380 | 55 | 0 | 0 | 233 | 0
`|`5.`1990` | 686 | 0 | 324 | 0 | 0 | 0 | 410 | 0
`|`6.`1991` | 1,688 | 0 | 500 | 0 | 0 | 0 | 578 | 0
`|`7.`1992` | 2,673 | 177 | 511 | 0 | 0 | 0 | 445 | 0
`|`8.`1993` | 1,631 | 0 | 737 | 2 | 0 | 0 | 1,046 | 3
`|`9.`1994` | 3,974 | 62 | 885 | 5 | 0 | 0 | 1,768 | 17
`|10.`1995` | 5,851 | 210 | 2,283 | 15 | 0 | 0 | 2,043 | 22
`|11.`1996` | 25,775 | 9 | 10,617 | 506 | 0 | 0 | 2,623 | 164
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | 43,866 | 463 | 17,631 | 583 | 0 | 0 | 9,927 | 215
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 8 | 0 | 1,044 | 7 |
| 5 | 0 | 1,307 | 2 |
| 11 | 0 | 906 | 3 |
| 14 | 0 | 1,050 | 14 |
| 29 | 88 | 1,508 | 28 |
| 93 | 170 | 2,936 | 37 |
| 170 | 262 | 3,714 | 100 |
| 2 | 158 | 3,567 | 93 |
| 515 | 313 | 6,856 | 228 |
| 523 | 424 | 10,354 | 427 |
| 882 | 1,967 | 40,303 | 3,920 |
|--------------|--------------|--------------|-------------|
| 2,252 | 3,382 | 73,545 | 4,859 |
>-------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|`2.`1987` | 140,991 | 507 | 140,484 | 57.6 | 9.3 | 58.7 | 0 | 0
`|`3.`1988` | 138,610 | 79 | 138,531 | 60.7 | 1.7 | 62.0 | 0 | 0
`|`4.`1989` | 177,394 | 9,074 | 168,320 | 80.1 | 226.6 | 77.4 | 0 | 0
`|`5.`1990` | 159,116 | 2 | 159,114 | 71.7 | 0.0 | 73.7 | 0 | 0
`|`6.`1991` | 185,100 | 454 | 184,646 | 83.0 | 9.0 | 84.7 | 0 | 0
`|`7.`1992` | 280,048 | 76,289 | 203,759 | 136.2 | 833.8 | 103.7 | 0 | 0
`|`8.`1993` | 129,661 | 8,285 | 121,376 | 74.2 | 43.1 | 78.1 | 0 | 0
`|`9.`1994` | 155,091 | 11,179 | 143,912 | 93.7 | 36.0 | 107.0 | 0 | 0
`|10.`1995` | 118,328 | 4,096 | 114,232 | 71.8 | 27.0 | 76.3 | 0 | 0
`|11.`1996` | 174,431 | 679 | 173,752 | 100.8 | 4.3 | 110.6 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | 535 | 509 |
| 0.0 | 1,209 | 98 |
| 0.0 | 741 | 165 |
| 0.0 | 817 | 233 |
| 0.0 | 1,010 | 498 |
| 0.0 | 2,188 | 748 |
| 0.0 | 3,007 | 707 |
| 0.0 | 2,366 | 1,201 |
| 0.0 | 4,792 | 2,064 |
| 0.0 | 7,909 | 2,445 |
| 0.0 | 35,877 | 4,426 |
|--------------|--------------|--------------|
| X X X | 60,451 | 13,094 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1B - PRIVATE PASSENGER AUTO LIABILITY/MEDICAL
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | 4,161 | 1,923 | 239 | 4 | 143
`|`2.`1987` | 389,845 | 37,384 | 352,461 | 332,122 | 38,177 | 15,889 | 1,142 | 5,883
`|`3.`1988` | 405,014 | 56,013 | 349,001 | 335,049 | 48,489 | 17,134 | 1,620 | 6,589
`|`4.`1989` | 428,138 | 61,598 | 366,540 | 355,151 | 51,363 | 17,974 | 2,165 | 7,366
`|`5.`1990` | 453,815 | 58,201 | 395,614 | 340,595 | 45,214 | 19,423 | 2,038 | 9,168
`|`6.`1991` | 469,417 | 27,612 | 441,805 | 325,136 | 17,094 | 22,973 | 962 | 8,127
`|`7.`1992` | 398,904 | 11,344 | 387,560 | 240,512 | 5,878 | 16,144 | 198 | 7,533
`|`8.`1993` | 376,998 | 8,869 | 368,129 | 221,236 | 6,656 | 13,483 | 140 | 5,211
`|`9.`1994` | 314,647 | 5,153 | 309,494 | 188,179 | 3,195 | 8,866 | 67 | 4,606
`|10.`1995` | 301,998 | 3,878 | 298,120 | 148,200 | 1,634 | 4,567 | 30 | 2,020
`|11.`1996` | 292,492 | 4,317 | 288,175 | 71,315 | 806 | 1,239 | 5 | 1,054
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | 2,561,656 | 220,429 | 137,931 | 8,371 | 57,700
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 161 | 2,634 | X X X |
| 15,718 | 324,410 | 135,774 |
| 13,246 | 315,320 | 129,126 |
| 15,527 | 335,124 | 128,615 |
| 19,302 | 332,068 | 120,928 |
| 25,112 | 355,165 | 111,367 |
| 29,502 | 280,082 | 94,234 |
| 25,393 | 253,316 | 80,357 |
| 20,912 | 214,695 | 75,523 |
| 20,002 | 171,105 | 71,984 |
| 14,788 | 86,531 | 62,698 |
|--------------|--------------|--------------|
| 199,663 | 2,670,450 | X X X |
- - --------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 24,318 | 11,938 | 3,411 | 38 | 0 | 0 | 2,246 | 426
`|`2.`1987` | 336 | 136 | 1,640 | 26 | 0 | 0 | 221 | 6
`|`3.`1988` | 611 | 33 | 1,874 | 94 | 0 | 0 | 378 | 24
`|`4.`1989` | 2,760 | 348 | 705 | 108 | 0 | 0 | 492 | 60
`|`5.`1990` | 4,133 | 321 | 2,026 | 123 | 0 | 0 | 1,024 | 69
`|`6.`1991` | 5,892 | 163 | 2,084 | 78 | 4 | 0 | 1,604 | 63
`|`7.`1992` | 10,156 | 531 | 1,715 | 34 | 69 | 5 | 2,322 | 28
`|`8.`1993` | 19,008 | 166 | 2,139 | 44 | 281 | 9 | 3,140 | 36
`|`9.`1994` | 31,010 | 1,259 | 10,417 | 154 | 820 | 0 | 5,743 | 208
`|10.`1995` | 49,792 | 406 | 19,865 | 139 | 1,575 | 1 | 7,826 | 84
`|11.`1996` | 77,279 | 526 | 48,569 | 420 | 1,903 | 0 | 9,825 | 59
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | 225,295 | 15,827 | 94,445 | 1,258 | 4,652 | 15 | 34,821 | 1,063
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| (3)| 1,051 | 18,624 | 163 |
| 13 | 90 | 2,119 | 16 |
| 43 | 115 | 2,827 | 28 |
| 93 | 130 | 3,571 | 53 |
| 144 | 243 | 6,913 | 117 |
| 247 | 303 | 9,583 | 272 |
| 391 | 411 | 14,075 | 478 |
| 549 | 779 | 25,092 | 857 |
| 879 | 1,601 | 47,970 | 1,661 |
| 1,140 | 2,996 | 81,424 | 3,501 |
| 2,024 | 7,461 | 144,032 | 13,115 |
|--------------|--------------|--------------|-------------|
| 5,520 | 15,180 | 356,230 | 20,261 |
- - --------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|`2.`1987` | 366,016 | 39,487 | 326,529 | 93.9 | 105.6 | 92.6 | 0 | 0
`|`3.`1988` | 368,407 | 50,260 | 318,147 | 91.0 | 89.7 | 91.2 | 0 | 0
`|`4.`1989` | 392,739 | 54,044 | 338,695 | 91.7 | 87.7 | 92.4 | 0 | 0
`|`5.`1990` | 386,746 | 47,765 | 338,981 | 85.2 | 82.1 | 85.7 | 0 | 0
`|`6.`1991` | 383,108 | 18,360 | 364,748 | 81.6 | 66.5 | 82.6 | 0 | 0
`|`7.`1992` | 300,831 | 6,674 | 294,157 | 75.4 | 58.8 | 75.9 | 0 | 0
`|`8.`1993` | 285,459 | 7,051 | 278,408 | 75.7 | 79.5 | 75.6 | 0 | 0
`|`9.`1994` | 267,548 | 4,883 | 262,665 | 85.0 | 94.8 | 84.9 | 0 | 0
`|10.`1995` | 254,823 | 2,294 | 252,529 | 84.4 | 59.2 | 84.7 | 0 | 0
`|11.`1996` | 232,379 | 1,816 | 230,563 | 79.4 | 42.1 | 80.0 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | 15,753 | 2,871 |
| 0.0 | 1,814 | 305 |
| 0.0 | 2,358 | 469 |
| 0.0 | 3,009 | 562 |
| 0.0 | 5,715 | 1,198 |
| 0.0 | 7,735 | 1,848 |
| 0.0 | 11,306 | 2,769 |
| 0.0 | 20,937 | 4,155 |
| 0.0 | 40,014 | 7,956 |
| 0.0 | 69,112 | 12,312 |
| 0.0 | 124,902 | 19,130 |
|--------------|--------------|--------------|
| X X X | 302,655 | 53,575 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1C - COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | 2,772 | 1,609 | 363 | 8 | 27
`|`2.`1987` | 504,537 | 27,137 | 477,400 | 300,509 | 26,297 | 26,180 | 1,697 | 3,504
`|`3.`1988` | 461,137 | 39,793 | 421,344 | 295,559 | 35,389 | 24,910 | 2,762 | 4,819
`|`4.`1989` | 424,658 | 43,290 | 381,368 | 287,970 | 39,574 | 24,032 | 3,868 | 3,138
`|`5.`1990` | 419,676 | 42,802 | 376,874 | 264,650 | 37,375 | 24,270 | 3,538 | 3,867
`|`6.`1991` | 385,326 | 39,874 | 345,452 | 214,164 | 21,634 | 20,386 | 2,621 | 2,938
`|`7.`1992` | 323,014 | 39,044 | 283,970 | 182,821 | 24,569 | 17,759 | 2,336 | 2,782
`|`8.`1993` | 266,252 | 30,643 | 235,609 | 129,440 | 17,223 | 11,666 | 1,525 | 2,311
`|`9.`1994` | 241,837 | 29,388 | 212,449 | 106,632 | 14,774 | 7,875 | 988 | 1,807
`|10.`1995` | 225,516 | 29,036 | 196,480 | 73,957 | 10,255 | 4,014 | 239 | 1,619
`|11.`1996` | 231,907 | 35,233 | 196,674 | 30,213 | 2,865 | 1,625 | 67 | 1,152
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | 1,888,687 | 231,564 | 163,080 | 19,649 | 27,964
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 87 | 1,605 | X X X |
| 12,804 | 311,499 | 73,871 |
| 13,454 | 295,772 | 66,873 |
| 12,944 | 281,504 | 61,520 |
| 13,860 | 261,867 | 56,624 |
| 13,705 | 224,000 | 47,008 |
| 15,360 | 189,035 | 41,017 |
| 13,306 | 135,664 | 34,165 |
| 10,732 | 109,477 | 31,635 |
| 8,140 | 75,617 | 26,527 |
| 7,413 | 36,319 | 24,618 |
|--------------|--------------|--------------|
| 121,805 | 1,922,359 | X X X |
>-------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 7,300 | 4,250 | 474 | 7 | 0 | 0 | 1,401 | 17
`|`2.`1987` | 1,437 | 0 | 1,352 | 5 | 0 | 0 | 295 | 0
`|`3.`1988` | 2,221 | 125 | 975 | 18 | 0 | 0 | 607 | 51
`|`4.`1989` | 2,783 | 565 | 1,049 | 21 | 0 | 0 | 789 | 168
`|`5.`1990` | 6,859 | 927 | 1,337 | 65 | 0 | 0 | 2,375 | 493
`|`6.`1991` | 5,147 | 527 | 2,060 | 149 | 0 | 0 | 2,361 | 324
`|`7.`1992` | 13,834 | 2,477 | 2,997 | 208 | 0 | 0 | 3,097 | 598
`|`8.`1993` | 17,977 | 2,639 | 5,146 | 415 | 26 | 0 | 4,494 | 831
`|`9.`1994` | 32,990 | 3,102 | 10,661 | 824 | 113 | 0 | 6,746 | 772
`|10.`1995` | 46,391 | 7,016 | 31,510 | 2,792 | 166 | 13 | 9,096 | 972
`|11.`1996` | 48,883 | 6,245 | 72,924 | 11,711 | 50 | 20 | 10,834 | (162)
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | 185,822 | 27,873 | 130,485 | 16,215 | 355 | 33 | 42,095 | 4,064
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 88 | 1 | 4,902 | 55 |
| 10 | 15 | 3,094 | 24 |
| 24 | 29 | 3,638 | 56 |
| 52 | 75 | 3,942 | 43 |
| 107 | 149 | 9,235 | 122 |
| 130 | 110 | 8,678 | 168 |
| 111 | 311 | 16,956 | 366 |
| 5 | 447 | 24,205 | 528 |
| 183 | 1,070 | 46,882 | 1,031 |
| 480 | 1,796 | 78,166 | 1,522 |
| 833 | 4,663 | 119,540 | 4,976 |
|--------------|--------------|--------------|-------------|
| 2,023 | 8,666 | 319,238 | 8,891 |
>-------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|`2.`1987` | 342,592 | 27,999 | 314,593 | 67.9 | 103.2 | 65.9 | 0 | 0
`|`3.`1988` | 337,755 | 38,345 | 299,410 | 73.2 | 96.4 | 71.1 | 0 | 0
`|`4.`1989` | 329,642 | 44,196 | 285,446 | 77.6 | 102.1 | 74.8 | 0 | 0
`|`5.`1990` | 313,500 | 42,398 | 271,102 | 74.7 | 99.1 | 71.9 | 0 | 0
`|`6.`1991` | 257,933 | 25,255 | 232,678 | 66.9 | 63.3 | 67.4 | 0 | 0
`|`7.`1992` | 236,179 | 30,188 | 205,991 | 73.1 | 77.3 | 72.5 | 0 | 0
`|`8.`1993` | 182,502 | 22,633 | 159,869 | 68.5 | 73.9 | 67.9 | 0 | 0
`|`9.`1994` | 176,819 | 20,460 | 156,359 | 73.1 | 69.6 | 73.6 | 0 | 0
`|10.`1995` | 175,070 | 21,287 | 153,783 | 77.6 | 73.3 | 78.3 | 0 | 0
`|11.`1996` | 176,605 | 20,746 | 155,859 | 76.2 | 58.9 | 79.2 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | 3,517 | 1,385 |
| 0.0 | 2,784 | 310 |
| 0.0 | 3,053 | 585 |
| 0.0 | 3,246 | 696 |
| 0.0 | 7,204 | 2,031 |
| 0.0 | 6,531 | 2,147 |
| 0.0 | 14,146 | 2,810 |
| 0.0 | 20,069 | 4,136 |
| 0.0 | 39,725 | 7,157 |
| 0.0 | 68,093 | 10,073 |
| 0.0 | 103,851 | 15,689 |
|--------------|--------------|--------------|
| X X X | 272,219 | 47,019 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1D - WORKERS' COMPENSATION
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | 50,091 | 14,024 | 2,289 | 17 | 2,001
`|`2.`1987` | 622,801 | 81,301 | 541,500 | 588,166 | 127,803 | 24,455 | 391 | 19,752
`|`3.`1988` | 747,889 | 111,269 | 636,620 | 624,619 | 129,542 | 28,142 | 259 | 20,135
`|`4.`1989` | 791,969 | 158,717 | 633,252 | 680,827 | 150,056 | 31,932 | 319 | 20,405
`|`5.`1990` | 883,078 | 188,951 | 694,127 | 621,652 | 174,867 | 31,823 | 422 | 17,362
`|`6.`1991` | 754,958 | 251,311 | 503,647 | 495,726 | 181,508 | 27,845 | 420 | 10,968
`|`7.`1992` | 625,431 | 305,456 | 319,975 | 371,925 | 178,253 | 23,249 | 198 | 4,831
`|`8.`1993` | 457,088 | 306,269 | 150,819 | 218,562 | 140,570 | 16,704 | 166 | 1,519
`|`9.`1994` | 352,311 | 224,832 | 127,479 | 148,326 | 85,099 | 10,965 | 56 | 1,391
`|10.`1995` | 310,550 | 136,719 | 173,831 | 92,650 | 39,233 | 7,434 | 0 | 1,093
`|11.`1996` | 291,660 | 109,680 | 181,980 | 42,921 | 10,988 | 2,791 | 45 | 582
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | 3,935,465 | 1,231,943 | 207,629 | 2,293 | 100,039
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 3,294 | 41,633 | X X X |
| 10,391 | 494,818 | 44,078 |
| 14,261 | 537,221 | 47,393 |
| 14,422 | 576,806 | 50,003 |
| 14,908 | 493,094 | 46,923 |
| 16,439 | 358,082 | 41,398 |
| (4,856)| 211,867 | 32,989 |
| (11,529)| 83,001 | 22,408 |
| (2,950)| 71,186 | 17,896 |
| 7,085 | 67,936 | 13,773 |
| 8,560 | 43,239 | 10,284 |
|--------------|--------------|--------------|
| 70,025 | 2,978,883 | X X X |
>-------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 453,860 | 106,195 | 256,643 | 26,576 | 0 | 0 | 18,395 | 496
`|`2.`1987` | 58,920 | 13,242 | 62,843 | 16,446 | 0 | 0 | 3,062 | 86
`|`3.`1988` | 57,487 | 3,430 | 81,116 | 27,244 | 0 | 0 | 3,576 | 55
`|`4.`1989` | 75,456 | 16,696 | 90,717 | 27,236 | 0 | 0 | 4,272 | 107
`|`5.`1990` | 78,564 | 22,269 | 101,231 | 34,678 | 0 | 0 | 5,149 | 108
`|`6.`1991` | 64,326 | 18,299 | 99,704 | 47,322 | 0 | 0 | 4,737 | 64
`|`7.`1992` | 53,913 | 24,960 | 133,427 | 96,112 | 0 | 0 | 4,119 | 53
`|`8.`1993` | 44,063 | 25,828 | 136,836 | 116,062 | 0 | 0 | 3,096 | 52
`|`9.`1994` | 43,492 | 23,401 | 120,867 | 96,955 | 0 | 0 | 3,764 | 16
`|10.`1995` | 59,734 | 27,560 | 98,427 | 61,765 | 2 | 0 | 4,268 | 77
`|11.`1996` | 75,361 | 23,950 | 112,789 | 55,561 | 0 | 0 | 9,255 | 2,062
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | 1,065,176 | 305,830 | 1,294,600 | 605,957 | 2 | 0 | 63,693 | 3,176
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 9,026 | 14,091 | 609,722 | 2,897 |
| 1,859 | 2,602 | 97,653 | 287 |
| 2,574 | 2,859 | 114,309 | 372 |
| 3,156 | 3,582 | 129,988 | 480 |
| 3,427 | 3,741 | 131,630 | 612 |
| 2,918 | 3,047 | 106,129 | 757 |
| 2,077 | 2,822 | 73,156 | 859 |
| 1,168 | 2,064 | 44,117 | 829 |
| 1,244 | 2,130 | 49,881 | 1,192 |
| 1,697 | 2,947 | 75,977 | 2,104 |
| 1,408 | 6,548 | 122,380 | 5,484 |
|--------------|--------------|--------------|-------------|
| 30,554 | 46,433 | 1,554,942 | 15,873 |
>-------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 95,561 | 6,741
`|`2.`1987` | 750,439 | 157,968 | 592,471 | 120.5 | 194.3 | 109.4 | 11,714 | 1,350
`|`3.`1988` | 812,060 | 160,530 | 651,530 | 108.6 | 144.3 | 102.3 | 13,958 | 1,494
`|`4.`1989` | 901,208 | 194,414 | 706,794 | 113.8 | 122.5 | 111.6 | 15,803 | 1,785
`|`5.`1990` | 857,068 | 232,344 | 624,724 | 97.1 | 123.0 | 90.0 | 15,316 | 1,860
`|`6.`1991` | 711,824 | 247,613 | 464,211 | 94.3 | 98.5 | 92.2 | 12,321 | 1,586
`|`7.`1992` | 584,599 | 299,576 | 285,023 | 93.5 | 98.1 | 89.1 | 7,066 | 1,312
`|`8.`1993` | 409,796 | 282,678 | 127,118 | 89.7 | 92.3 | 84.3 | 4,641 | 969
`|`9.`1994` | 326,594 | 205,527 | 121,067 | 92.7 | 91.4 | 95.0 | 4,921 | 952
`|10.`1995` | 272,548 | 128,635 | 143,913 | 87.8 | 94.1 | 82.8 | 6,866 | 1,070
`|11.`1996` | 258,225 | 92,606 | 165,619 | 88.5 | 84.4 | 91.0 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 188,167 | 19,119
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | 482,171 | 25,249 |
| 0.0 | 80,361 | 4,228 |
| 0.0 | 93,971 | 4,886 |
| 0.0 | 106,438 | 5,962 |
| 0.0 | 107,532 | 6,922 |
| 0.0 | 86,088 | 6,134 |
| 0.0 | 59,202 | 5,576 |
| 0.0 | 34,368 | 4,139 |
| 0.0 | 39,082 | 4,926 |
| 0.0 | 61,970 | 6,071 |
| 0.0 | 108,639 | 13,741 |
|--------------|--------------|--------------|
| X X X | 1,259,822 | 87,834 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1E - COMMERCIAL MULTIPLE PERIL
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | 3,566 | (1)| 1,676 | 0 | 68
`|`2.`1987` | 387,310 | 18,374 | 368,936 | 158,947 | 590 | 27,337 | 102 | 5,577
`|`3.`1988` | 650,932 | 26,143 | 624,789 | 252,767 | 6,281 | 46,440 | 129 | 12,173
`|`4.`1989` | 738,672 | 18,418 | 720,254 | 342,146 | 20,718 | 52,955 | 365 | 10,877
`|`5.`1990` | 731,950 | 13,795 | 718,155 | 327,411 | 5,539 | 68,624 | 359 | 11,538
`|`6.`1991` | 674,236 | 4,649 | 669,587 | 279,214 | 7,439 | 51,419 | 517 | 8,792
`|`7.`1992` | 608,782 | 4,166 | 604,616 | 292,090 | 45,073 | 49,242 | 3,456 | 7,212
`|`8.`1993` | 601,390 | 5,796 | 595,594 | 242,907 | 10,081 | 31,334 | 243 | 6,336
`|`9.`1994` | 636,937 | 5,964 | 630,973 | 245,372 | 6,114 | 22,452 | 513 | 9,554
`|10.`1995` | 658,826 | 6,298 | 652,528 | 217,761 | 16,611 | 8,783 | 228 | 6,576
`|11.`1996` | 720,065 | 7,052 | 713,013 | 156,427 | 437 | 2,497 | (1)| 4,236
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | 2,518,608 | 118,882 | 362,759 | 5,911 | 82,939
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 239 | 5,482 | X X X |
| 13,589 | 199,181 | 33,865 |
| 28,663 | 321,460 | 59,755 |
| 36,340 | 410,358 | 79,855 |
| 37,509 | 427,646 | 78,917 |
| 34,156 | 356,833 | 75,102 |
| 38,386 | 331,189 | 69,451 |
| 38,342 | 302,259 | 74,518 |
| 32,638 | 293,835 | 82,950 |
| 33,099 | 242,804 | 77,843 |
| 28,539 | 187,027 | 78,657 |
|--------------|--------------|--------------|
| 321,500 | 3,078,074 | X X X |
>-------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 6,948 | 8 | 2,843 | 1 | 0 | 0 | 10,194 | 1
`|`2.`1987` | 3,314 | 0 | 1,604 | 0 | 0 | 0 | 3,936 | 0
`|`3.`1988` | 8,680 | 0 | 8,165 | 1 | 0 | 0 | 11,126 | 1
`|`4.`1989` | 9,130 | 3 | 11,183 | 16 | 0 | 0 | 16,078 | 1
`|`5.`1990` | 14,357 | 2 | 16,622 | 2 | 0 | 0 | 24,279 | 2
`|`6.`1991` | 26,450 | 9 | 22,440 | 1 | 0 | 0 | 28,173 | 2
`|`7.`1992` | 39,516 | 151 | 18,843 | 2 | 0 | 0 | 29,237 | 1
`|`8.`1993` | 44,530 | 0 | 26,627 | 5 | 0 | 0 | 36,836 | 8
`|`9.`1994` | 58,899 | 338 | 43,129 | 6 | 0 | 0 | 51,666 | 6
`|10.`1995` | 68,094 | 1,598 | 82,881 | 11 | 0 | 0 | 64,213 | 19
`|11.`1996` | 118,377 | 6,277 | 148,081 | 143 | 0 | 0 | 77,844 | 72
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | 398,295 | 8,386 | 382,418 | 188 | 0 | 0 | 353,582 | 113
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 101 | 1,260 | 21,235 | 214 |
| 69 | 557 | 9,411 | 52 |
| 171 | 1,896 | 29,865 | 153 |
| 611 | 2,409 | 38,780 | 203 |
| 805 | 2,968 | 58,220 | 382 |
| 1,020 | 4,603 | 81,654 | 538 |
| 1,244 | 4,926 | 92,368 | 856 |
| 1,879 | 5,362 | 113,342 | 1,397 |
| 3,262 | 7,177 | 160,521 | 2,434 |
| 3,670 | 10,216 | 223,776 | 3,902 |
| 3,639 | 18,413 | 356,223 | 12,898 |
|--------------|--------------|--------------|-------------|
| 16,471 | 59,787 | 1,185,395 | 23,029 |
>-------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|`2.`1987` | 209,284 | 692 | 208,592 | 54.0 | 3.8 | 56.5 | 0 | 0
`|`3.`1988` | 357,737 | 6,412 | 351,325 | 55.0 | 24.5 | 56.2 | 0 | 0
`|`4.`1989` | 470,241 | 21,103 | 449,138 | 63.7 | 114.6 | 62.4 | 0 | 0
`|`5.`1990` | 491,770 | 5,904 | 485,866 | 67.2 | 42.8 | 67.7 | 0 | 0
`|`6.`1991` | 446,455 | 7,968 | 438,487 | 66.2 | 171.4 | 65.5 | 0 | 0
`|`7.`1992` | 472,240 | 48,683 | 423,557 | 77.6 | 1,168.6 | 70.1 | 0 | 0
`|`8.`1993` | 425,938 | 10,337 | 415,601 | 70.8 | 178.3 | 69.8 | 0 | 0
`|`9.`1994` | 461,333 | 6,977 | 454,356 | 72.4 | 117.0 | 72.0 | 0 | 0
`|10.`1995` | 485,047 | 18,467 | 466,580 | 73.6 | 293.2 | 71.5 | 0 | 0
`|11.`1996` | 550,178 | 6,928 | 543,250 | 76.4 | 98.2 | 76.2 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | 9,782 | 11,453 |
| 0.0 | 4,918 | 4,493 |
| 0.0 | 16,844 | 13,021 |
| 0.0 | 20,294 | 18,486 |
| 0.0 | 30,975 | 27,245 |
| 0.0 | 48,880 | 32,774 |
| 0.0 | 58,206 | 34,162 |
| 0.0 | 71,152 | 42,190 |
| 0.0 | 101,684 | 58,837 |
| 0.0 | 149,366 | 74,410 |
| 0.0 | 260,038 | 96,185 |
|--------------|--------------|--------------|
| X X X | 772,139 | 413,256 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1F - SECTION 1 - MEDICAL MALPRACTICE - OCCURRENCE
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | 1,344 | 0 | 491 | 0 | 81
`|`2.`1987` | 660 | 0 | 660 | 9 | 0 | 8 | 0 | 0
`|`3.`1988` | 548 | 0 | 548 | 143 | 0 | 33 | 0 | 0
`|`4.`1989` | 88 | 0 | 88 | 140 | 0 | 27 | 0 | 0
`|`5.`1990` | 84 | 0 | 84 | 377 | 0 | 51 | 0 | 0
`|`6.`1991` | 56 | 0 | 56 | 113 | 0 | 20 | 0 | 0
`|`7.`1992` | 60 | 0 | 60 | 1 | 0 | 14 | 0 | 0
`|`8.`1993` | 1 | 0 | 1 | 0 | 0 | 0 | 0 | 0
`|`9.`1994` | 1 | 0 | 1 | 0 | 0 | 0 | 0 | 0
`|10.`1995` | 17 | 11 | 6 | 0 | 0 | 0 | 0 | 0
`|11.`1996` | 52 | 35 | 17 | 0 | 0 | 0 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | 2,127 | 0 | 644 | 0 | 81
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 73 | 1,908 | X X X |
| 78 | 95 | 5 |
| 15 | 191 | 4 |
| 8 | 175 | 4 |
| 10 | 438 | 4 |
| 10 | 143 | 1 |
| 8 | 23 | 0 |
| 0 | 0 | 1 |
| 0 | 0 | 0 |
| 0 | 0 | 0 |
| 0 | 0 | 0 |
|--------------|--------------|--------------|
| 202 | 2,973 | X X X |
>-------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 1,492 | 0 | 584 | 0 | 0 | 0 | 808 | 0
`|`2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`3.`1988` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`4.`1989` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`5.`1990` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`6.`1991` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`7.`1992` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`8.`1993` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`9.`1994` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|10.`1995` | 0 | 0 | 13 | 9 | 0 | 0 | 1 | 1
`|11.`1996` | 0 | 0 | 37 | 25 | 0 | 0 | 2 | 1
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | 1,492 | 0 | 634 | 34 | 0 | 0 | 811 | 2
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 0 | 260 | 3,144 | 79 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 4 | 0 |
| 0 | 0 | 13 | 0 |
|--------------|--------------|--------------|-------------|
| 0 | 260 | 3,161 | 79 |
>-------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|`2.`1987` | 95 | 0 | 95 | 14.4 | 0.0 | 14.4 | 0 | 0
`|`3.`1988` | 191 | 0 | 191 | 34.9 | 0.0 | 34.9 | 0 | 0
`|`4.`1989` | 175 | 0 | 175 | 198.9 | 0.0 | 198.9 | 0 | 0
`|`5.`1990` | 438 | 0 | 438 | 521.4 | 0.0 | 521.4 | 0 | 0
`|`6.`1991` | 143 | 0 | 143 | 255.4 | 0.0 | 255.4 | 0 | 0
`|`7.`1992` | 23 | 0 | 23 | 38.3 | 0.0 | 38.3 | 0 | 0
`|`8.`1993` | 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0
`|`9.`1994` | 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0
`|10.`1995` | 14 | 10 | 4 | 82.4 | 90.9 | 66.7 | 0 | 0
`|11.`1996` | 39 | 26 | 13 | 75.0 | 74.3 | 76.5 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | 2,076 | 1,068 |
| 0.0 | 0 | 0 |
| 0.0 | 0 | 0 |
| 0.0 | 0 | 0 |
| 0.0 | 0 | 0 |
| 0.0 | 0 | 0 |
| 0.0 | 0 | 0 |
| 0.0 | 0 | 0 |
| 0.0 | 0 | 0 |
| 0.0 | 4 | 0 |
| 0.0 | 12 | 1 |
|--------------|--------------|--------------|
| X X X | 2,092 | 1,069 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1F - SECTION 2 - MEDICAL MALPRACTICE - CLAIMS-MADE
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|`2.`1987` | 117 | 0 | 117 | 19 | 0 | 5 | 0 | 0
`|`3.`1988` | 219 | 0 | 219 | 174 | 0 | 45 | 0 | 0
`|`4.`1989` | 228 | 0 | 228 | 203 | 0 | 54 | 0 | 0
`|`5.`1990` | 256 | 0 | 256 | 230 | 0 | 35 | 0 | 0
`|`6.`1991` | 299 | 0 | 299 | 1 | 0 | 14 | 0 | 0
`|`7.`1992` | 255 | 0 | 255 | 16 | 0 | 22 | 0 | 0
`|`8.`1993` | 66 | 0 | 66 | 0 | 0 | 0 | 0 | 0
`|`9.`1994` | (2)| 0 | (2)| 0 | 0 | 0 | 0 | 0
`|10.`1995` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|11.`1996` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | 643 | 0 | 175 | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 0 | 0 | X X X |
| 0 | 24 | 0 |
| 0 | 219 | 0 |
| 0 | 257 | 2 |
| 0 | 265 | 0 |
| 0 | 15 | 0 |
| 0 | 38 | 0 |
| 0 | 0 | 0 |
| 0 | 0 | 0 |
| 0 | 0 | 0 |
| 0 | 0 | 0 |
|--------------|--------------|--------------|
| 0 | 818 | X X X |
>-------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`2.`1987` | 0 | 0 | 64 | 0 | 0 | 0 | 0 | 0
`|`3.`1988` | 162 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`4.`1989` | 50 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`5.`1990` | 36 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`6.`1991` | 2 | 0 | 122 | 0 | 0 | 0 | 0 | 0
`|`7.`1992` | 72 | 0 | 65 | 0 | 0 | 0 | 0 | 0
`|`8.`1993` | 1 | 0 | 48 | 0 | 0 | 0 | 0 | 0
`|`9.`1994` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|10.`1995` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|11.`1996` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | 323 | 0 | 299 | 0 | 0 | 0 | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 64 | 0 |
| 0 | 0 | 162 | 0 |
| 0 | 0 | 50 | 0 |
| 0 | 0 | 36 | 0 |
| 0 | 0 | 124 | 0 |
| 0 | 0 | 137 | 0 |
| 0 | 0 | 49 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
|--------------|--------------|--------------|-------------|
| 0 | 0 | 622 | 0 |
>-------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|`2.`1987` | 88 | 0 | 88 | 75.2 | 0.0 | 75.2 | 0 | 0
`|`3.`1988` | 381 | 0 | 381 | 174.0 | 0.0 | 174.0 | 0 | 0
`|`4.`1989` | 307 | 0 | 307 | 134.6 | 0.0 | 134.6 | 0 | 0
`|`5.`1990` | 301 | 0 | 301 | 117.6 | 0.0 | 117.6 | 0 | 0
`|`6.`1991` | 139 | 0 | 139 | 46.5 | 0.0 | 46.5 | 0 | 0
`|`7.`1992` | 175 | 0 | 175 | 68.6 | 0.0 | 68.6 | 0 | 0
`|`8.`1993` | 49 | 0 | 49 | 74.2 | 0.0 | 74.2 | 0 | 0
`|`9.`1994` | 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0
`|10.`1995` | 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0
`|11.`1996` | 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | 0 | 0 |
| 0.0 | 64 | 0 |
| 0.0 | 162 | 0 |
| 0.0 | 50 | 0 |
| 0.0 | 36 | 0 |
| 0.0 | 124 | 0 |
| 0.0 | 137 | 0 |
| 0.0 | 49 | 0 |
| 0.0 | 0 | 0 |
| 0.0 | 0 | 0 |
| 0.0 | 0 | 0 |
|--------------|--------------|--------------|
| X X X | 622 | 0 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1G - SPECIAL LIABILITY (OCEAN MARINE,
AIRCRAFT (ALL PERILS), BOILER AND MACHINERY)
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | 467 | 454 | 43 | 33 | 0
`|`2.`1987` | 123,309 | 70,752 | 52,557 | 69,491 | 42,013 | 6,339 | 4,118 | 1,105
`|`3.`1988` | 103,314 | 60,212 | 43,102 | 74,373 | 51,419 | 5,889 | 4,551 | 242
`|`4.`1989` | 69,557 | 42,615 | 26,942 | 52,318 | 30,879 | 4,524 | 2,783 | 867
`|`5.`1990` | 63,446 | 36,143 | 27,303 | 50,441 | 32,073 | 4,751 | 3,344 | 150
`|`6.`1991` | 42,600 | 31,190 | 11,410 | 50,868 | 34,129 | 4,412 | 3,158 | 224
`|`7.`1992` | 41,705 | 26,430 | 15,275 | 27,186 | 16,670 | 2,815 | 1,785 | 116
`|`8.`1993` | 49,332 | 34,173 | 15,159 | 22,223 | 12,469 | 2,403 | 1,520 | 151
`|`9.`1994` | 55,171 | 32,328 | 22,843 | 26,619 | 10,928 | 1,801 | 1,353 | 65
`|10.`1995` | 37,114 | 16,287 | 20,827 | 7,496 | 541 | 519 | 296 | 8
`|11.`1996` | 33,556 | 10,990 | 22,566 | 4,319 | 438 | 231 | 75 | 2
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | 385,801 | 232,013 | 33,727 | 23,016 | 2,930
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 0 | 23 | X X X |
| 89 | 29,788 | X X X |
| 72 | 24,364 | X X X |
| 73 | 23,253 | X X X |
| 92 | 19,867 | X X X |
| 77 | 18,070 | X X X |
| 97 | 11,643 | X X X |
| 240 | 10,877 | X X X |
| 32 | 16,171 | X X X |
| 7 | 7,185 | X X X |
| 5 | 4,042 | X X X |
|--------------|--------------|--------------|
| 784 | 165,283 | X X X |
>-------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 2,137 | 1,212 | 220 | 5 | 0 | 0 | 125 | 106
`|`2.`1987` | 516 | 180 | 530 | 6 | 0 | 0 | 140 | 37
`|`3.`1988` | 1,844 | 1,254 | 621 | 11 | 0 | 0 | 238 | 224
`|`4.`1989` | 948 | 397 | 429 | 19 | 0 | 0 | 109 | 65
`|`5.`1990` | 735 | 334 | 188 | 14 | 0 | 0 | 93 | 68
`|`6.`1991` | 1,030 | 690 | 110 | 36 | 0 | 0 | 174 | 128
`|`7.`1992` | 448 | 267 | (67)| 17 | 0 | 0 | 100 | 46
`|`8.`1993` | 2,460 | 1,348 | 178 | 66 | 0 | 0 | 298 | 195
`|`9.`1994` | 3,797 | 1,996 | 839 | 121 | 0 | 0 | 420 | 312
`|10.`1995` | 6,874 | 2,189 | 3,245 | 99 | 0 | 0 | 466 | 312
`|11.`1996` | 7,614 | 1,052 | 7,144 | 56 | 0 | 0 | 148 | 143
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | 28,403 | 10,919 | 13,437 | 450 | 0 | 0 | 2,311 | 1,636
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 0 | 0 | 1,159 | 0 |
| 0 | 0 | 963 | 0 |
| 0 | 0 | 1,214 | 1 |
| 0 | 0 | 1,005 | 1 |
| 0 | 0 | 600 | 3 |
| 0 | 0 | 460 | 0 |
| 0 | 0 | 151 | 3 |
| 0 | 2 | 1,329 | 8 |
| 0 | 0 | 2,627 | 1 |
| 0 | 0 | 7,985 | 0 |
| 0 | 1 | 13,656 | 4 |
|--------------|--------------|--------------|-------------|
| 0 | 3 | 31,149 | 21 |
>-------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|`2.`1987` | 77,105 | 46,354 | 30,751 | 62.5 | 65.5 | 58.5 | 0 | 0
`|`3.`1988` | 83,037 | 57,459 | 25,578 | 80.4 | 95.4 | 59.3 | 0 | 0
`|`4.`1989` | 58,401 | 34,143 | 24,258 | 84.0 | 80.1 | 90.0 | 0 | 0
`|`5.`1990` | 56,300 | 35,833 | 20,467 | 88.7 | 99.1 | 75.0 | 0 | 0
`|`6.`1991` | 56,671 | 38,141 | 18,530 | 133.0 | 122.3 | 162.4 | 0 | 0
`|`7.`1992` | 30,579 | 18,785 | 11,794 | 73.3 | 71.1 | 77.2 | 0 | 0
`|`8.`1993` | 27,804 | 15,598 | 12,206 | 56.4 | 45.6 | 80.5 | 0 | 0
`|`9.`1994` | 33,508 | 14,710 | 18,798 | 60.7 | 45.5 | 82.3 | 0 | 0
`|10.`1995` | 18,607 | 3,437 | 15,170 | 50.1 | 21.1 | 72.8 | 0 | 0
`|11.`1996` | 19,462 | 1,764 | 17,698 | 58.0 | 16.1 | 78.4 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | 1,140 | 19 |
| 0.0 | 860 | 103 |
| 0.0 | 1,200 | 14 |
| 0.0 | 961 | 44 |
| 0.0 | 575 | 25 |
| 0.0 | 414 | 46 |
| 0.0 | 97 | 54 |
| 0.0 | 1,224 | 105 |
| 0.0 | 2,519 | 108 |
| 0.0 | 7,831 | 154 |
| 0.0 | 13,650 | 6 |
|--------------|--------------|--------------|
| X X X | 30,471 | 678 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1H - SECTION 1 - OTHER LIABILITY - OCCURRENCE
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | 19,506 | 1,264 | 13,205 | 803 | 272
`|`2.`1987` | 624,510 | 133,070 | 491,440 | 244,882 | 80,997 | 42,334 | 1,757 | 5,294
`|`3.`1988` | 526,042 | 132,411 | 393,631 | 164,704 | 63,705 | 32,396 | 1,190 | 3,777
`|`4.`1989` | 290,820 | 66,258 | 224,562 | 117,107 | 46,069 | 21,450 | 909 | 3,007
`|`5.`1990` | 261,224 | 55,253 | 205,971 | 114,893 | 42,599 | 21,538 | 1,201 | 1,189
`|`6.`1991` | 178,427 | 27,429 | 150,998 | 52,360 | 8,222 | 15,649 | 602 | 1,793
`|`7.`1992` | 120,315 | 28,885 | 91,430 | 23,252 | 966 | 7,858 | 477 | 492
`|`8.`1993` | 105,805 | (1,216)| 107,021 | 21,639 | 2,773 | 4,882 | 300 | 110
`|`9.`1994` | 110,481 | 17,926 | 92,555 | 15,069 | 526 | 2,480 | 144 | 451
`|10.`1995` | 120,739 | 23,683 | 97,056 | 9,604 | 107 | 1,114 | 35 | 340
`|11.`1996` | 147,084 | 48,069 | 99,015 | 3,624 | 41 | 309 | 29 | 199
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | 786,640 | 247,269 | 163,215 | 7,447 | 16,924
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 1,828 | 32,472 | X X X |
| 11,771 | 216,233 | 28,554 |
| 8,509 | 140,714 | 21,307 |
| 5,950 | 97,529 | 14,673 |
| 6,272 | 98,903 | 15,554 |
| 5,208 | 64,393 | 11,070 |
| 4,413 | 34,080 | 6,604 |
| 2,761 | 26,209 | 4,815 |
| 2,139 | 19,018 | 4,457 |
| 2,520 | 13,096 | 4,491 |
| 1,977 | 5,840 | 4,631 |
|--------------|--------------|--------------|
| 53,348 | 748,487 | X X X |
>-------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 68,287 | 7,271 | 78,367 | 730 | 0 | 0 | 92,018 | 1,539
`|`2.`1987` | 5,080 | 398 | 13,394 | 102 | 0 | 0 | 15,230 | 181
`|`3.`1988` | 4,992 | 319 | 14,167 | 83 | 0 | 0 | 11,793 | 135
`|`4.`1989` | 3,750 | 426 | 16,567 | 104 | 0 | 0 | 8,308 | 205
`|`5.`1990` | 10,322 | 722 | 20,639 | 459 | 0 | 0 | 10,876 | 319
`|`6.`1991` | 7,947 | 431 | 23,610 | 1,269 | 0 | 0 | 10,144 | 264
`|`7.`1992` | 12,292 | 1,228 | 17,244 | 957 | 9 | 0 | 7,977 | 392
`|`8.`1993` | 8,935 | 432 | 18,958 | 1,204 | 589 | 0 | 8,247 | 300
`|`9.`1994` | 9,408 | 524 | 29,121 | 2,624 | 79 | 0 | 9,965 | 619
`|10.`1995` | 12,303 | 1,311 | 40,028 | 5,376 | 25 | 0 | 12,935 | 649
`|11.`1996` | 10,569 | 975 | 67,182 | 21,678 | 0 | 0 | 15,267 | 1,218
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | 153,885 | 14,037 | 339,277 | 34,586 | 702 | 0 | 202,760 | 5,821
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 728 | 11,411 | 240,543 | 895 |
| 302 | 1,363 | 34,386 | 120 |
| 71 | 1,234 | 31,649 | 91 |
| 247 | 994 | 28,884 | 74 |
| 264 | 1,428 | 41,765 | 153 |
| 241 | 1,355 | 41,092 | 182 |
| 182 | 1,073 | 36,018 | 189 |
| 195 | 986 | 35,779 | 252 |
| 288 | 1,323 | 46,129 | 267 |
| 338 | 2,204 | 60,159 | 510 |
| 686 | 5,691 | 74,838 | 1,125 |
|--------------|--------------|--------------|-------------|
| 3,542 | 29,062 | 671,242 | 3,858 |
>-------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|`2.`1987` | 334,054 | 83,435 | 250,619 | 53.5 | 62.7 | 51.0 | 0 | 0
`|`3.`1988` | 237,795 | 65,432 | 172,363 | 45.2 | 49.4 | 43.8 | 0 | 0
`|`4.`1989` | 174,126 | 47,713 | 126,413 | 59.9 | 72.0 | 56.3 | 0 | 0
`|`5.`1990` | 185,968 | 45,300 | 140,668 | 71.2 | 82.0 | 68.3 | 0 | 0
`|`6.`1991` | 116,273 | 10,788 | 105,485 | 65.2 | 39.3 | 69.9 | 0 | 0
`|`7.`1992` | 74,118 | 4,020 | 70,098 | 61.6 | 13.9 | 76.7 | 0 | 0
`|`8.`1993` | 66,997 | 5,009 | 61,988 | 63.3 | (411.9)| 57.9 | 0 | 0
`|`9.`1994` | 69,584 | 4,437 | 65,147 | 63.0 | 24.8 | 70.4 | 0 | 0
`|10.`1995` | 80,733 | 7,478 | 73,255 | 66.9 | 31.6 | 75.5 | 0 | 0
`|11.`1996` | 104,619 | 23,941 | 80,678 | 71.1 | 49.8 | 81.5 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | 138,653 | 101,890 |
| 0.0 | 17,974 | 16,412 |
| 0.0 | 18,757 | 12,892 |
| 0.0 | 19,787 | 9,097 |
| 0.0 | 29,780 | 11,985 |
| 0.0 | 29,857 | 11,235 |
| 0.0 | 27,351 | 8,667 |
| 0.0 | 26,257 | 9,522 |
| 0.0 | 35,381 | 10,748 |
| 0.0 | 45,644 | 14,515 |
| 0.0 | 55,098 | 19,740 |
|--------------|--------------|--------------|
| X X X | 444,539 | 226,703 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1H - SECTION 2 - OTHER LIABILITY - CLAIMS-MADE
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | 137 | 38 | 272 | 0 | 0
`|`2.`1987` | 68 | 0 | 68 | 0 | 0 | (6)| 0 | 0
`|`3.`1988` | 1,993 | 0 | 1,993 | 609 | 28 | 52 | 6 | 13
`|`4.`1989` | 2,406 | 0 | 2,406 | 678 | 0 | 141 | 0 | 18
`|`5.`1990` | 2,190 | 286 | 1,904 | 872 | 0 | 112 | 0 | 11
`|`6.`1991` | 3,185 | 42 | 3,143 | 450 | 0 | 196 | 0 | 17
`|`7.`1992` | 2,299 | 270 | 2,029 | 815 | 0 | 239 | 0 | 7
`|`8.`1993` | 1,936 | 517 | 1,419 | 149 | 0 | 120 | 0 | 17
`|`9.`1994` | 2,756 | 480 | 2,276 | 395 | 0 | 364 | 0 | 8
`|10.`1995` | 3,956 | 331 | 3,625 | 70 | 0 | 91 | 0 | 28
`|11.`1996` | 7,279 | 2,050 | 5,229 | 163 | 0 | 100 | 0 | 22
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | 4,338 | 66 | 1,681 | 6 | 141
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 107 | 478 | X X X |
| 22 | 16 | 6 |
| 102 | 729 | 125 |
| 121 | 940 | 201 |
| 79 | 1,063 | 163 |
| 87 | 733 | 165 |
| 115 | 1,169 | 151 |
| 61 | 330 | 110 |
| 50 | 809 | 77 |
| 282 | 443 | 306 |
| 468 | 731 | 1,167 |
|--------------|--------------|--------------|
| 1,494 | 7,441 | X X X |
>-------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 3,107 | 219 | 14 | 0 | 0 | 0 | 884 | 185
`|`2.`1987` | 0 | 0 | 5 | 0 | 0 | 0 | 222 | 0
`|`3.`1988` | 0 | 0 | 53 | 0 | 0 | 0 | 31 | 0
`|`4.`1989` | 29 | 0 | 111 | 0 | 0 | 0 | 73 | 0
`|`5.`1990` | 0 | 0 | 142 | 0 | 0 | 0 | 49 | 0
`|`6.`1991` | 0 | 0 | 158 | 0 | 0 | 0 | 43 | 0
`|`7.`1992` | 100 | 0 | 118 | 0 | 0 | 0 | 83 | 0
`|`8.`1993` | 424 | 0 | 130 | 0 | 0 | 0 | 291 | 0
`|`9.`1994` | 243 | 0 | 285 | 0 | 0 | 0 | 123 | 0
`|10.`1995` | 205 | 0 | 198 | 0 | 0 | 0 | 195 | 0
`|11.`1996` | 2,560 | 0 | 1,324 | 434 | 0 | 0 | 1,106 | 21
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | 6,668 | 219 | 2,538 | 434 | 0 | 0 | 3,100 | 206
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 0 | 28 | 3,629 | 5 |
| 0 | 1 | 228 | 1 |
| 0 | 3 | 87 | 2 |
| 0 | 14 | 227 | 2 |
| 0 | 16 | 207 | 2 |
| 0 | 8 | 209 | 0 |
| 0 | 27 | 328 | 4 |
| 0 | 50 | 895 | 20 |
| 0 | 41 | 692 | 9 |
| 0 | 43 | 641 | 21 |
| 0 | 616 | 5,151 | 165 |
|--------------|--------------|--------------|-------------|
| 0 | 847 | 12,294 | 231 |
>-------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|`2.`1987` | 244 | 0 | 244 | 358.8 | 0.0 | 358.8 | 0 | 0
`|`3.`1988` | 850 | 34 | 816 | 42.6 | 0.0 | 40.9 | 0 | 0
`|`4.`1989` | 1,167 | 0 | 1,167 | 48.5 | 0.0 | 48.5 | 0 | 0
`|`5.`1990` | 1,270 | 0 | 1,270 | 58.0 | 0.0 | 66.7 | 0 | 0
`|`6.`1991` | 942 | 0 | 942 | 29.6 | 0.0 | 30.0 | 0 | 0
`|`7.`1992` | 1,497 | 0 | 1,497 | 65.1 | 0.0 | 73.8 | 0 | 0
`|`8.`1993` | 1,225 | 0 | 1,225 | 63.3 | 0.0 | 86.3 | 0 | 0
`|`9.`1994` | 1,501 | 0 | 1,501 | 54.5 | 0.0 | 65.9 | 0 | 0
`|10.`1995` | 1,084 | 0 | 1,084 | 27.4 | 0.0 | 29.9 | 0 | 0
`|11.`1996` | 6,337 | 455 | 5,882 | 87.1 | 22.2 | 112.5 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | 2,902 | 727 |
| 0.0 | 5 | 223 |
| 0.0 | 53 | 34 |
| 0.0 | 140 | 87 |
| 0.0 | 142 | 65 |
| 0.0 | 158 | 51 |
| 0.0 | 218 | 110 |
| 0.0 | 554 | 341 |
| 0.0 | 528 | 164 |
| 0.0 | 403 | 238 |
| 0.0 | 3,450 | 1,701 |
|--------------|--------------|--------------|
| X X X | 8,553 | 3,741 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1I - SPECIAL PROPERTY (FIRE, ALLIED LINES, INLAND MARINE,
EARTHQUAKE, GLASS, BURGLARY AND THEFT)
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | 10,012 | 2,211 | 1,308 | 90 | 649
`|`2.`1995` | 188,874 | 71,580 | 117,294 | 71,348 | 9,965 | 1,442 | 108 | 1,093
`|`3.`1996` | 228,287 | 53,093 | 175,194 | 65,742 | 2,147 | 1,088 | 15 | 396
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`4.`Totals` | X X X | X X X | X X X | 147,102 | 14,323 | 3,838 | 213 | 2,138
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 118 | 9,137 | X X X |
| 3,289 | 66,006 | X X X |
| 4,374 | 69,042 | X X X |
|--------------|--------------|--------------|
| 7,781 | 144,185 | X X X |
>-------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 14,806 | 3,132 | 8,949 | 93 | 0 | 0 | 1,052 | 153
`|`2.`1995` | 6,883 | 1,838 | 1,362 | 289 | 0 | 0 | 1,381 | 688
`|`3.`1996` | 36,092 | 6,295 | 11,818 | 1,370 | 38 | 34 | 1,914 | 515
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`4.`Totals` | 57,781 | 11,265 | 22,129 | 1,752 | 38 | 34 | 4,347 | 1,356
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 991 | 77 | 21,506 | 129 |
| 1,290 | 114 | 6,925 | 145 |
| 4,215 | 1,277 | 42,925 | 1,077 |
|--------------|--------------|--------------|-------------|
| 6,496 | 1,468 | 71,356 | 1,351 |
>-------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|`2.`1995` | 85,819 | 12,888 | 72,931 | 45.4 | 18.0 | 62.2 | 0 | 0
`|`3.`1996` | 122,343 | 10,376 | 111,967 | 53.6 | 19.5 | 63.9 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`4.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | 20,530 | 976 |
| 0.0 | 6,118 | 807 |
| 0.0 | 40,245 | 2,680 |
|--------------|--------------|--------------|
| X X X | 66,893 | 4,463 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1J - AUTO PHYSICAL DAMAGE
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | 20 | (40)| 919 | 55 | 2,238
`|`2.`1995` | 236,544 | 9,923 | 226,621 | 132,439 | 3,353 | 2,067 | 15 | 17,728
`|`3.`1996` | 224,948 | 5,523 | 219,425 | 123,003 | 2,511 | 761 | 13 | 10,475
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`4.`Totals` | X X X | X X X | X X X | 255,462 | 5,824 | 3,747 | 83 | 30,441
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 546 | 1,470 | X X X |
| 14,862 | 146,000 | 99,599 |
| 19,089 | 140,329 | 100,096 |
|--------------|--------------|--------------|
| 34,497 | 287,799 | X X X |
>-------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 3,939 | 258 | 5,140 | 6 | 0 | 0 | 1,131 | 33
`|`2.`1995` | 1,695 | 33 | 652 | 4 | 4 | 0 | 762 | 17
`|`3.`1996` | 17,121 | 157 | (480)| 108 | 392 | 0 | 1,540 | 51
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`4.`Totals` | 22,755 | 448 | 5,312 | 118 | 396 | 0 | 3,433 | 101
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 2,558 | 58 | 9,971 | 150 |
| 2,233 | 76 | 3,135 | 329 |
| 8,469 | 2,373 | 20,630 | 4,487 |
|--------------|--------------|--------------|-------------|
| 13,260 | 2,507 | 33,736 | 4,966 |
>-------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|`2.`1995` | 152,557 | 3,422 | 149,135 | 64.5 | 34.5 | 65.8 | 0 | 0
`|`3.`1996` | 163,799 | 2,840 | 160,959 | 72.8 | 51.4 | 73.4 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`4.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | 8,815 | 1,156 |
| 0.0 | 2,310 | 825 |
| 0.0 | 16,376 | 4,254 |
|--------------|--------------|--------------|
| X X X | 27,501 | 6,235 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1K - FIDELITY/SURETY
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | 35,614 | 26,794 | 7,841 | 3,057 | 11,322
`|`2.`1995` | 173,201 | 37,627 | 135,574 | 41,287 | 11,869 | 1,269 | 225 | 1,462
`|`3.`1996` | 180,383 | 24,866 | 155,517 | 4,170 | (1,951)| 234 | 2 | 96
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`4.`Totals` | X X X | X X X | X X X | 81,071 | 36,712 | 9,344 | 3,284 | 12,880
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 2,146 | 15,750 | X X X |
| 2,149 | 32,611 | X X X |
| 374 | 6,727 | X X X |
|--------------|--------------|--------------|
| 4,669 | 55,088 | X X X |
>-------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 19,147 | 5,506 | (16,687)| (396)| 0 | 0 | 18,788 | 4,460
`|`2.`1995` | 10,183 | 9,214 | 4,032 | (103)| 0 | 0 | 11,057 | 2,493
`|`3.`1996` | 3,144 | 73 | 28,451 | 599 | 0 | 0 | 12,691 | 1,833
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`4.`Totals` | 32,474 | 14,793 | 15,796 | 100 | 0 | 0 | 42,536 | 8,786
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 11,266 | 2,188 | 13,866 | 1,590 |
| 4,600 | 1,095 | 14,763 | 755 |
| 3,515 | 956 | 42,737 | 636 |
|--------------|--------------|--------------|-------------|
| 19,381 | 4,239 | 71,366 | 2,981 |
>-------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|`2.`1995` | 71,072 | 23,698 | 47,374 | 41.0 | 63.0 | 34.9 | 0 | 0
`|`3.`1996` | 50,020 | 556 | 49,464 | 27.7 | 2.2 | 31.8 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`4.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | (2,650)| 16,516 |
| 0.0 | 5,104 | 9,659 |
| 0.0 | 30,923 | 11,814 |
|--------------|--------------|--------------|
| X X X | 33,377 | 37,989 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1L - OTHER (INCLUDING CREDIT, ACCIDENT AND HEALTH)
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | 91 | 54 | 4 | 0 | 0
`|`2.`1995` | (967)| 1 | (968)| 26 | 0 | 0 | 0 | 0
`|`3.`1996` | 193 | 7 | 186 | 0 | 0 | 0 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`4.`Totals` | X X X | X X X | X X X | 117 | 54 | 4 | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 0 | 41 | X X X |
| 1 | 27 | X X X |
| 0 | 0 | X X X |
|--------------|--------------|--------------|
| 1 | 68 | X X X |
>-------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 169 | 102 | 0 | 0 | 0 | 0 | 325 | 10
`|`2.`1995` | 4 | 0 | 1 | 0 | 0 | 0 | 0 | 0
`|`3.`1996` | 18 | 0 | 4 | 0 | 0 | 0 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`4.`Totals` | 191 | 102 | 5 | 0 | 0 | 0 | 325 | 10
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 0 | 0 | 382 | 4 |
| 0 | 0 | 5 | 3 |
| 0 | 2 | 24 | 12 |
|--------------|--------------|--------------|-------------|
| 0 | 2 | 411 | 19 |
>-------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|`2.`1995` | 32 | 0 | 32 | (3.3)| 0.0 | (3.3)| 0 | 0
`|`3.`1996` | 24 | 0 | 24 | 12.4 | 0.0 | 12.9 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`4.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | 67 | 315 |
| 0.0 | 5 | 0 |
| 0.0 | 22 | 2 |
|--------------|--------------|--------------|
| X X X | 94 | 317 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1M - INTERNATIONAL
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|`2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`3.`1988` | 19,649 | 337 | 19,312 | 13,866 | 90 | 390 | 1 | 0
`|`4.`1989` | 14,651 | 122 | 14,529 | 10,607 | 24 | 331 | 0 | 0
`|`5.`1990` | 12,386 | 63 | 12,323 | 10,660 | 212 | 340 | 0 | 0
`|`6.`1991` | 9,982 | 69 | 9,913 | 7,501 | 46 | 223 | (2)| 0
`|`7.`1992` | 4,683 | 39 | 4,644 | 3,345 | 12 | 45 | (8)| 0
`|`8.`1993` | 12,988 | 0 | 12,988 | 6,230 | 1 | 7 | 0 | 0
`|`9.`1994` | 77,224 | 0 | 77,224 | 40,959 | 2 | 68 | (2)| 0
`|10.`1995` | 132,147 | 0 | 132,147 | 67,455 | 6 | 186 | (6)| 0
`|11.`1996` | 145,211 | 0 | 145,211 | 41,809 | 4 | 227 | (4)| 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | 202,432 | 397 | 1,817 | (21)| 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 0 | 0 | X X X |
| 0 | 0 | X X X |
| 0 | 14,165 | X X X |
| 0 | 10,914 | X X X |
| 0 | 10,788 | X X X |
| 0 | 7,680 | X X X |
| 0 | 3,386 | X X X |
| 0 | 6,236 | X X X |
| 0 | 41,027 | X X X |
| 0 | 67,641 | X X X |
| 0 | 42,036 | X X X |
|--------------|--------------|--------------|
| 0 | 203,873 | X X X |
>-------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`3.`1988` | 344 | 0 | 823 | 0 | 0 | 0 | 0 | 0
`|`4.`1989` | 474 | 0 | 959 | 0 | 0 | 0 | 0 | 0
`|`5.`1990` | 227 | 0 | 559 | 0 | 0 | 0 | 0 | 0
`|`6.`1991` | 335 | 0 | 605 | 0 | 0 | 0 | 0 | 0
`|`7.`1992` | 141 | 0 | 315 | 0 | 0 | 0 | 0 | 0
`|`8.`1993` | 543 | 0 | 288 | 0 | 0 | 0 | 0 | 0
`|`9.`1994` | 7,281 | 0 | 3,015 | 0 | 0 | 0 | 0 | 0
`|10.`1995` | 24,139 | 0 | 9,881 | 0 | 0 | 0 | 0 | 0
`|11.`1996` | 48,407 | 0 | 38,894 | 0 | 0 | 0 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | 81,891 | 0 | 55,339 | 0 | 0 | 0 | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 1,167 | 0 |
| 0 | 0 | 1,433 | 0 |
| 0 | 0 | 786 | 0 |
| 0 | 0 | 940 | 0 |
| 0 | 0 | 456 | 0 |
| 0 | 0 | 831 | 0 |
| 0 | 0 | 10,296 | 0 |
| 0 | 0 | 34,020 | 0 |
| 0 | 0 | 87,301 | 0 |
|--------------|--------------|--------------|-------------|
| 0 | 0 | 137,230 | 0 |
>-------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|`2.`1987` | 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0
`|`3.`1988` | 15,423 | 91 | 15,332 | 78.5 | 27.0 | 79.4 | 0 | 0
`|`4.`1989` | 12,371 | 24 | 12,347 | 84.4 | 19.7 | 85.0 | 0 | 0
`|`5.`1990` | 11,786 | 212 | 11,574 | 95.2 | 336.5 | 93.9 | 0 | 0
`|`6.`1991` | 8,664 | 44 | 8,620 | 86.8 | 63.8 | 87.0 | 0 | 0
`|`7.`1992` | 3,846 | 4 | 3,842 | 82.1 | 10.3 | 82.7 | 0 | 0
`|`8.`1993` | 7,068 | 1 | 7,067 | 54.4 | 0.0 | 54.4 | 0 | 0
`|`9.`1994` | 51,323 | 0 | 51,323 | 66.5 | 0.0 | 66.5 | 0 | 0
`|10.`1995` | 101,661 | 0 | 101,661 | 76.9 | 0.0 | 76.9 | 0 | 0
`|11.`1996` | 129,337 | 0 | 129,337 | 89.1 | 0.0 | 89.1 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | 0 | 0 |
| 0.0 | 0 | 0 |
| 0.0 | 1,167 | 0 |
| 0.0 | 1,433 | 0 |
| 0.0 | 786 | 0 |
| 0.0 | 940 | 0 |
| 0.0 | 456 | 0 |
| 0.0 | 831 | 0 |
| 0.0 | 10,296 | 0 |
| 0.0 | 34,020 | 0 |
| 0.0 | 87,301 | 0 |
|--------------|--------------|--------------|
| X X X | 137,230 | 0 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1N - REINSURANCE A
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`1988` | 34,707 | 1,738 | 32,969 | 12,477 | 956 | 416 | 86 | 0
`|`2.`1989` | 25,922 | 2,056 | 23,866 | 14,810 | 1,861 | 468 | (188)| 0
`|`3.`1990` | 79,740 | 60,145 | 19,595 | 51,964 | 42,053 | 954 | 85 | 0
`|`4.`1991` | 60,073 | 34,454 | 25,619 | 25,580 | 18,868 | 392 | (67)| 0
`|`5.`1992` | 56,589 | 10,089 | 46,500 | 23,458 | 17,853 | 321 | 140 | 0
`|`6.`1993` | 61,844 | 10,382 | 51,462 | 7,360 | 2,873 | 152 | 23 | 0
`|`7.`1994` | 54,527 | 18,639 | 35,888 | 10,432 | 4,129 | 223 | 39 | 0
`|`8.`1995` | 76,202 | 29,867 | 46,335 | 16,450 | 6,329 | 122 | 24 | 0
`|`9.`1996` | 58,659 | 27,277 | 31,382 | 2,430 | 721 | 34 | 5 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|10.`Totals` | X X X | X X X | X X X | 164,961 | 95,643 | 3,082 | 147 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 0 | 11,851 | X X X |
| 0 | 13,605 | X X X |
| 0 | 10,780 | X X X |
| 0 | 7,171 | X X X |
| 0 | 5,786 | X X X |
| 0 | 4,616 | X X X |
| 0 | 6,487 | X X X |
| 0 | 10,219 | X X X |
| 0 | 1,738 | X X X |
|--------------|--------------|--------------|
| 0 | 72,253 | X X X |
>-------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`1988` | 663 | 1 | 2,741 | 9 | 0 | 0 | 21 | 0
`|`2.`1989` | 1,042 | 5 | 2,810 | 21 | 0 | 0 | 56 | 0
`|`3.`1990` | 1,370 | 31 | 2,057 | 18 | 0 | 0 | 13 | 0
`|`4.`1991` | 1,037 | 116 | 2,919 | 63 | 0 | 0 | 28 | 6
`|`5.`1992` | 1,294 | 282 | 5,373 | 122 | 0 | 0 | 41 | 8
`|`6.`1993` | 2,551 | 554 | 6,181 | 111 | 0 | 0 | 55 | 3
`|`7.`1994` | 2,000 | 505 | 13,520 | 183 | 0 | 0 | 48 | 1
`|`8.`1995` | 2,854 | 862 | 28,643 | 7,095 | 0 | 0 | 30 | 2
`|`9.`1996` | 2,488 | 324 | 33,216 | 12,415 | 0 | 0 | 13 | 1
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|10.`Totals` | 15,299 | 2,680 | 97,460 | 20,037 | 0 | 0 | 305 | 21
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 0 | 0 | 3,415 | X X X |
| 0 | 0 | 3,882 | X X X |
| 0 | 0 | 3,391 | X X X |
| 0 | 0 | 3,799 | X X X |
| 0 | 0 | 6,296 | X X X |
| 0 | 0 | 8,119 | X X X |
| 0 | 0 | 14,879 | X X X |
| 0 | 0 | 23,568 | X X X |
| 0 | 0 | 22,977 | X X X |
|--------------|--------------|--------------|-------------|
| 0 | 0 | 90,326 | X X X |
>-------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`1988` | 16,318 | 1,052 | 15,266 | 47.0 | 60.5 | 46.3 | 0 | 0
`|`2.`1989` | 19,186 | 1,699 | 17,487 | 74.0 | 82.6 | 73.3 | 0 | 0
`|`3.`1990` | 56,358 | 42,187 | 14,171 | 70.7 | 70.1 | 72.3 | 0 | 0
`|`4.`1991` | 29,956 | 18,986 | 10,970 | 49.9 | 55.1 | 42.8 | 0 | 0
`|`5.`1992` | 30,487 | 18,405 | 12,082 | 53.9 | 182.4 | 26.0 | 0 | 0
`|`6.`1993` | 16,299 | 3,564 | 12,735 | 26.4 | 34.3 | 24.7 | 0 | 0
`|`7.`1994` | 26,223 | 4,857 | 21,366 | 48.1 | 26.1 | 59.5 | 0 | 0
`|`8.`1995` | 48,099 | 14,312 | 33,787 | 63.1 | 47.9 | 72.9 | 0 | 0
`|`9.`1996` | 38,181 | 13,466 | 24,715 | 65.1 | 49.4 | 78.8 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|10.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| 0.0 | 3,394 | 21 |
| 0.0 | 3,826 | 56 |
| 0.0 | 3,378 | 13 |
| 0.0 | 3,777 | 22 |
| 0.0 | 6,263 | 33 |
| 0.0 | 8,067 | 52 |
| 0.0 | 14,832 | 47 |
| 0.0 | 23,540 | 28 |
| 0.0 | 22,965 | 12 |
|--------------|--------------|--------------|
| X X X | 90,042 | 284 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1O - REINSURANCE B
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`1988` | 155,207 | 139,405 | 15,802 | 123,606 | 117,282 | 1,118 | 170 | 0
`|`2.`1989` | 443,293 | 419,913 | 23,380 | 255,977 | 243,904 | 2,551 | 85 | 0
`|`3.`1990` | 321,700 | 308,404 | 13,296 | 194,963 | 188,706 | 1,970 | 339 | 0
`|`4.`1991` | 150,194 | 142,532 | 7,662 | 71,704 | 69,775 | 934 | 193 | 0
`|`5.`1992` | 193,234 | 175,005 | 18,229 | 190,409 | 178,713 | 257 | 94 | 0
`|`6.`1993` | 334,768 | 372,114 | (37,346)| 99,551 | 95,771 | 272 | (136)| 0
`|`7.`1994` | 241,254 | 101,075 | 140,179 | 55,268 | 12,955 | 242 | (9)| 0
`|`8.`1995` | 257,202 | 216,242 | 40,960 | 74,824 | 63,140 | 97 | 82 | 0
`|`9.`1996` | 182,462 | 125,475 | 56,987 | 5,575 | 4,381 | 17 | (13)| 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|10.`Totals` | X X X | X X X | X X X | 1,071,877 | 974,627 | 7,458 | 805 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 0 | 7,272 | X X X |
| 0 | 14,539 | X X X |
| 0 | 7,888 | X X X |
| 0 | 2,670 | X X X |
| 0 | 11,859 | X X X |
| 0 | 4,188 | X X X |
| 0 | 42,564 | X X X |
| 0 | 11,699 | X X X |
| 0 | 1,224 | X X X |
|--------------|--------------|--------------|
| 0 | 103,903 | X X X |
>-------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`1988` | 44,282 | 43,962 | 1,414 | 178 | 0 | 0 | 21 | 0
`|`2.`1989` | 51,562 | 50,782 | 1,999 | 393 | 0 | 0 | 60 | 0
`|`3.`1990` | 57,676 | 57,353 | 913 | 345 | 0 | 0 | 5 | 0
`|`4.`1991` | 5,782 | 5,256 | 2,787 | 1,188 | 0 | 0 | 207 | 114
`|`5.`1992` | 2,968 | 2,294 | 4,428 | 1,698 | 0 | 0 | 291 | 151
`|`6.`1993` | 3,059 | 1,575 | 11,953 | 7,357 | 0 | 0 | 262 | 41
`|`7.`1994` | 13,842 | 3,139 | 39,204 | 8,105 | 0 | 0 | 233 | 3
`|`8.`1995` | 3,742 | (1,904)| 85,151 | 62,587 | 0 | 0 | 47 | 4
`|`9.`1996` | 8,124 | 10,879 | 173,806 | 129,979 | 0 | 0 | 27 | (741)
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|10.`Totals` | 191,037 | 173,336 | 321,655 | 211,830 | 0 | 0 | 1,153 | (428)
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 0 | 0 | 1,577 | X X X |
| 0 | 0 | 2,446 | X X X |
| 0 | 0 | 896 | X X X |
| 0 | 0 | 2,218 | X X X |
| 0 | 2 | 3,546 | X X X |
| 0 | 26 | 6,327 | X X X |
| 0 | 32 | 42,064 | X X X |
| 0 | 3 | 28,256 | X X X |
| 0 | 0 | 41,840 | X X X |
|--------------|--------------|--------------|-------------|
| 0 | 63 | 129,170 | X X X |
>-------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`1988` | 170,441 | 161,592 | 8,849 | 109.8 | 115.9 | 56.0 | 0 | 0
`|`2.`1989` | 312,149 | 295,164 | 16,985 | 70.4 | 70.3 | 72.6 | 0 | 0
`|`3.`1990` | 255,527 | 246,743 | 8,784 | 79.4 | 80.0 | 66.1 | 0 | 0
`|`4.`1991` | 81,414 | 76,526 | 4,888 | 54.2 | 53.7 | 63.8 | 0 | 0
`|`5.`1992` | 198,355 | 182,950 | 15,405 | 102.7 | 104.5 | 84.5 | 0 | 0
`|`6.`1993` | 115,123 | 104,608 | 10,515 | 34.4 | 28.1 | (28.2)| 0 | 0
`|`7.`1994` | 108,821 | 24,193 | 84,628 | 45.1 | 23.9 | 60.4 | 0 | 0
`|`8.`1995` | 163,864 | 123,909 | 39,955 | 63.7 | 57.3 | 97.5 | 0 | 0
`|`9.`1996` | 187,549 | 144,485 | 43,064 | 102.8 | 115.2 | 75.6 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|10.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| 0.0 | 1,556 | 21 |
| 0.0 | 2,386 | 60 |
| 0.0 | 891 | 5 |
| 0.0 | 2,125 | 93 |
| 0.0 | 3,404 | 142 |
| 0.0 | 6,080 | 247 |
| 0.0 | 41,802 | 262 |
| 0.0 | 28,210 | 46 |
| 0.0 | 41,072 | 768 |
|--------------|--------------|--------------|
| X X X | 127,526 | 1,644 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF .
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1P - REINSURANCE C
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`1988` | 1,548 | (3)| 1,551 | 387 | 0 | 7 | 0 | 0
`|`2.`1989` | 1,673 | 0 | 1,673 | 0 | 0 | 0 | 0 | 0
`|`3.`1990` | 365 | 330 | 35 | 0 | 0 | 0 | 0 | 0
`|`4.`1991` | 1,068 | 1,068 | 0 | 0 | 0 | 0 | 0 | 0
`|`5.`1992` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`6.`1993` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`7.`1994` | 16 | 0 | 16 | 0 | 0 | 0 | 0 | 0
`|`8.`1995` | (33)| 595 | (628)| 801 | 309 | 0 | 0 | 0
`|`9.`1996` | 910 | 464 | 446 | 66 | 25 | 0 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|10.`Totals` | X X X | X X X | X X X | 1,254 | 334 | 7 | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 0 | 394 | X X X |
| 0 | 0 | X X X |
| 0 | 0 | X X X |
| 0 | 0 | X X X |
| 0 | 0 | X X X |
| 0 | 0 | X X X |
| 0 | 0 | X X X |
| 0 | 492 | X X X |
| 0 | 41 | X X X |
|--------------|--------------|--------------|
| 0 | 927 | X X X |
>-------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`1988` | 14 | 0 | 35 | 0 | 0 | 0 | 0 | 0
`|`2.`1989` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`3.`1990` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`4.`1991` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`5.`1992` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`6.`1993` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`7.`1994` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`8.`1995` | 69 | 15 | 755 | 85 | 0 | 0 | 0 | 0
`|`9.`1996` | 95 | 10 | 897 | 124 | 0 | 0 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|10.`Totals` | 178 | 25 | 1,687 | 209 | 0 | 0 | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 0 | 0 | 49 | X X X |
| 0 | 0 | 0 | X X X |
| 0 | 0 | 0 | X X X |
| 0 | 0 | 0 | X X X |
| 0 | 0 | 0 | X X X |
| 0 | 0 | 0 | X X X |
| 0 | 0 | 0 | X X X |
| 0 | 0 | 724 | X X X |
| 0 | 0 | 858 | X X X |
|--------------|--------------|--------------|-------------|
| 0 | 0 | 1,631 | X X X |
>-------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`1988` | 443 | 0 | 443 | 28.6 | 0.0 | 28.6 | 0 | 0
`|`2.`1989` | 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0
`|`3.`1990` | 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0
`|`4.`1991` | 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0
`|`5.`1992` | 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0
`|`6.`1993` | 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0
`|`7.`1994` | 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0
`|`8.`1995` | 1,625 | 409 | 1,216 | (4,924.2)| 68.7 | (193.6)| 0 | 0
`|`9.`1996` | 1,058 | 159 | 899 | 116.3 | 34.3 | 201.6 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|10.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| 0.0 | 49 | 0 |
| 0.0 | 0 | 0 |
| 0.0 | 0 | 0 |
| 0.0 | 0 | 0 |
| 0.0 | 0 | 0 |
| 0.0 | 0 | 0 |
| 0.0 | 0 | 0 |
| 0.0 | 724 | 0 |
| 0.0 | 858 | 0 |
|--------------|--------------|--------------|
| X X X | 1,631 | 0 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1Q - REINSURANCE D
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | 185 | 0 | 1 | 0 | 0
`|`2.`1987` | 49,262 | 5,704 | 43,558 | 33,964 | 4,128 | 853 | (169)| 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`3.`Totals` | X X X | X X X | X X X | 34,149 | 4,128 | 854 | (169)| 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 0 | 186 | X X X |
| 0 | 30,858 | X X X |
|--------------|--------------|--------------|
| 0 | 31,044 | X X X |
- - --------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 432 | 0 | 405 | 0 | 0 | 0 | 0 | 0
`|`2.`1987` | 1,015 | 6 | 2,060 | 0 | 0 | 0 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`3.`Totals` | 1,447 | 6 | 2,465 | 0 | 0 | 0 | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 0 | 0 | 837 | X X X |
| 0 | 0 | 3,069 | X X X |
|--------------|--------------|--------------|-------------|
| 0 | 0 | 3,906 | X X X |
- - --------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|`2.`1987` | 37,892 | 3,965 | 33,927 | 76.9 | 69.5 | 77.9 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`3.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | 837 | 0 |
| 0.0 | 3,069 | 0 |
|--------------|--------------|--------------|
| X X X | 3,906 | 0 |
- - --------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1R - SECTION 1 - PRODUCTS LIABILITY - OCCURRENCE
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | 2,036 | 73 | 4,099 | 235 | 198
`|`2.`1987` | 69,307 | 20,533 | 48,774 | 24,584 | 7,048 | 13,073 | 2,529 | 1,050
`|`3.`1988` | 45,670 | 15,513 | 30,157 | 13,630 | 2,223 | 8,107 | 700 | 475
`|`4.`1989` | 29,430 | 10,438 | 18,992 | 13,213 | 4,094 | 6,451 | 1,808 | 360
`|`5.`1990` | 24,423 | 8,559 | 15,864 | 8,143 | 2,209 | 3,345 | 826 | 44
`|`6.`1991` | 17,168 | 5,206 | 11,962 | 9,426 | 2,797 | 5,748 | 1,103 | 123
`|`7.`1992` | 12,044 | 3,459 | 8,585 | 3,610 | 753 | 1,967 | 369 | 132
`|`8.`1993` | 11,626 | 5,243 | 6,383 | 3,899 | 1,148 | 1,086 | 311 | 11
`|`9.`1994` | 8,042 | 3,169 | 4,873 | 557 | 283 | 229 | 128 | 9
`|10.`1995` | 4,812 | 726 | 4,086 | 44 | 1 | 94 | 0 | 1
`|11.`1996` | 5,970 | 289 | 5,681 | 18 | 0 | 5 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | 79,160 | 20,629 | 44,204 | 8,009 | 2,403
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 1,058 | 6,885 | X X X |
| 1,752 | 29,832 | 1,291 |
| 1,129 | 19,943 | 922 |
| 724 | 14,486 | 987 |
| 751 | 9,204 | 961 |
| 928 | 12,202 | 650 |
| 903 | 5,358 | 497 |
| 406 | 3,932 | 252 |
| 173 | 548 | 127 |
| 210 | 347 | 87 |
| 55 | 78 | 106 |
|--------------|--------------|--------------|
| 8,089 | 102,815 | X X X |
- - --------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 22,144 | 691 | 11,381 | 214 | 0 | 0 | 21,153 | 811
`|`2.`1987` | 1,852 | 57 | 2,900 | 4 | 0 | 0 | 1,836 | 11
`|`3.`1988` | 2,635 | 242 | 1,727 | 18 | 0 | 0 | 1,851 | 57
`|`4.`1989` | 1,128 | 284 | 785 | 23 | 0 | 0 | 766 | 54
`|`5.`1990` | 623 | 166 | 842 | 18 | 0 | 0 | 796 | 34
`|`6.`1991` | 2,437 | 402 | 1,418 | 40 | 0 | 0 | 1,023 | 81
`|`7.`1992` | 1,493 | 378 | 995 | 31 | 0 | 0 | 849 | 84
`|`8.`1993` | 2,323 | 609 | 1,320 | 84 | 0 | 0 | 916 | 135
`|`9.`1994` | 599 | 261 | 978 | 50 | 0 | 0 | 740 | 63
`|10.`1995` | 537 | 0 | 1,646 | 64 | 0 | 0 | 882 | 3
`|11.`1996` | 314 | 0 | 2,235 | 100 | 0 | 0 | 813 | 5
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | 36,085 | 3,090 | 26,227 | 646 | 0 | 0 | 31,625 | 1,338
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 75 | 4,203 | 57,165 | 564 |
| 30 | 579 | 7,095 | 49 |
| 6 | 474 | 6,370 | 22 |
| 21 | 196 | 2,514 | 11 |
| 25 | 116 | 2,159 | 15 |
| 22 | 333 | 4,688 | 29 |
| 19 | 187 | 3,031 | 24 |
| 18 | 240 | 3,971 | 14 |
| 21 | 102 | 2,045 | 16 |
| 31 | 168 | 3,166 | 17 |
| 48 | 234 | 3,491 | 37 |
|--------------|--------------|--------------|-------------|
| 316 | 6,832 | 95,695 | 798 |
- - --------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|`2.`1987` | 46,576 | 9,649 | 36,927 | 67.2 | 47.0 | 75.7 | 0 | 0
`|`3.`1988` | 29,553 | 3,240 | 26,313 | 64.7 | 20.9 | 87.3 | 0 | 0
`|`4.`1989` | 23,263 | 6,263 | 17,000 | 79.0 | 60.0 | 89.5 | 0 | 0
`|`5.`1990` | 14,616 | 3,253 | 11,363 | 59.8 | 38.0 | 71.6 | 0 | 0
`|`6.`1991` | 21,313 | 4,423 | 16,890 | 124.1 | 85.0 | 141.2 | 0 | 0
`|`7.`1992` | 10,004 | 1,615 | 8,389 | 83.1 | 46.7 | 97.7 | 0 | 0
`|`8.`1993` | 10,190 | 2,287 | 7,903 | 87.6 | 43.6 | 123.8 | 0 | 0
`|`9.`1994` | 3,378 | 785 | 2,593 | 42.0 | 24.8 | 53.2 | 0 | 0
`|10.`1995` | 3,581 | 68 | 3,513 | 74.4 | 9.4 | 86.0 | 0 | 0
`|11.`1996` | 3,674 | 105 | 3,569 | 61.5 | 36.3 | 62.8 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | 32,620 | 24,545 |
| 0.0 | 4,691 | 2,404 |
| 0.0 | 4,102 | 2,268 |
| 0.0 | 1,606 | 908 |
| 0.0 | 1,281 | 878 |
| 0.0 | 3,413 | 1,275 |
| 0.0 | 2,079 | 952 |
| 0.0 | 2,950 | 1,021 |
| 0.0 | 1,266 | 779 |
| 0.0 | 2,119 | 1,047 |
| 0.0 | 2,449 | 1,042 |
|--------------|--------------|--------------|
| X X X | 58,576 | 37,119 |
>-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1R - SECTION 2 - PRODUCTS LIABILITY - CLAIMS-MADE
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|`2.`1987` | 14 | 0 | 14 | 0 | 0 | 0 | 0 | 0
`|`3.`1988` | 234 | 0 | 234 | 4 | 0 | 17 | 0 | 3
`|`4.`1989` | 310 | 0 | 310 | 27 | 0 | 10 | 0 | 0
`|`5.`1990` | 294 | 0 | 294 | 82 | 0 | 348 | 0 | 0
`|`6.`1991` | 285 | 0 | 285 | 98 | 0 | 74 | 0 | 13
`|`7.`1992` | 104 | 0 | 104 | 8 | 0 | 24 | 0 | 1
`|`8.`1993` | 118 | 0 | 118 | 1,042 | 0 | 1,318 | 0 | 0
`|`9.`1994` | 62 | 0 | 62 | 461 | 0 | 18 | 0 | 0
`|10.`1995` | 78 | 0 | 78 | 1 | 0 | 0 | 0 | 0
`|11.`1996` | 10 | 0 | 10 | 1 | 0 | 0 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | 1,724 | 0 | 1,809 | 0 | 17
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 21 | 21 | X X X |
| 9 | 9 | 1 |
| 16 | 37 | 9 |
| 15 | 52 | 4 |
| 40 | 470 | 9 |
| 66 | 238 | 14 |
| 692 | 724 | 6 |
| 326 | 2,686 | 83 |
| 10 | 489 | 63 |
| 32 | 33 | 12 |
| 11 | 12 | 38 |
|--------------|--------------|--------------|
| 1,238 | 4,771 | X X X |
- - --------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|`3.`1988` | 0 | 0 | 11 | 0 | 0 | 0 | 2 | 0
`|`4.`1989` | 0 | 0 | 11 | 0 | 0 | 0 | 6 | 0
`|`5.`1990` | 0 | 0 | 11 | 0 | 0 | 0 | 6 | 0
`|`6.`1991` | 0 | 0 | 28 | 0 | 0 | 0 | 5 | 0
`|`7.`1992` | 0 | 0 | 9 | 0 | 0 | 0 | 2 | 0
`|`8.`1993` | 609 | 0 | 16 | 0 | 0 | 0 | 175 | 0
`|`9.`1994` | 40 | 0 | 6 | 0 | 0 | 0 | 25 | 0
`|10.`1995` | 52 | 0 | 8 | 0 | 0 | 0 | 20 | 0
`|11.`1996` | 17 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | 718 | 0 | 100 | 0 | 0 | 0 | 241 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 1 | 14 | 0 |
| 0 | 1 | 18 | 0 |
| 0 | 1 | 18 | 0 |
| 0 | 3 | 36 | 0 |
| 0 | 1 | 12 | 0 |
| 0 | 52 | 852 | 23 |
| 0 | 4 | 75 | 16 |
| 0 | 5 | 85 | 4 |
| 0 | 2 | 19 | 4 |
|--------------|--------------|--------------|-------------|
| 0 | 70 | 1,129 | 47 |
- - --------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|`2.`1987` | 9 | 0 | 9 | 64.3 | 0.0 | 64.3 | 0 | 0
`|`3.`1988` | 51 | 0 | 51 | 21.8 | 0.0 | 21.8 | 0 | 0
`|`4.`1989` | 70 | 0 | 70 | 22.6 | 0.0 | 22.6 | 0 | 0
`|`5.`1990` | 488 | 0 | 488 | 166.0 | 0.0 | 166.0 | 0 | 0
`|`6.`1991` | 274 | 0 | 274 | 96.1 | 0.0 | 96.1 | 0 | 0
`|`7.`1992` | 736 | 0 | 736 | 707.7 | 0.0 | 707.7 | 0 | 0
`|`8.`1993` | 3,538 | 0 | 3,538 | 2,998.3 | 0.0 | 2,998.3 | 0 | 0
`|`9.`1994` | 564 | 0 | 564 | 909.7 | 0.0 | 909.7 | 0 | 0
`|10.`1995` | 118 | 0 | 118 | 151.3 | 0.0 | 151.3 | 0 | 0
`|11.`1996` | 31 | 0 | 31 | 310.0 | 0.0 | 310.0 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|12.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | 0 | 0 |
| 0.0 | 0 | 0 |
| 0.0 | 11 | 3 |
| 0.0 | 11 | 7 |
| 0.0 | 11 | 7 |
| 0.0 | 28 | 8 |
| 0.0 | 9 | 3 |
| 0.0 | 625 | 227 |
| 0.0 | 46 | 29 |
| 0.0 | 60 | 25 |
| 0.0 | 17 | 2 |
|--------------|--------------|--------------|
| X X X | 818 | 311 |
- - --------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 1S - FINANCIAL GUARANTY/MORTGAGE GUARANTY
($000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-------------#-------------#-------------|-----------------------------#-----------------------------#--------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were| | | |--------------#--------------|--------------#--------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | (408)| (239)| 48 | 22 | 360
`|`2.`1995` | 1,468 | 1,416 | 52 | 0 | 0 | 0 | 0 | 0
`|`3.`1996` | 1,342 | 1,309 | 33 | 0 | 0 | 0 | 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`4.`Totals` | X X X | X X X | X X X | (408)| (239)| 48 | 22 | 360
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
- - ------------------------------#--------------#
| |
#--------------#--------------| |
| 10 | 11 | 12 |
| | | Number of |
| Unallocated | Total | Claims |
| Loss | Net Paid | Reported - |
| Expense | (5 - 6 + 7 | Direct and |
| Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|
| | | |
| 22 | (121)| X X X |
| 0 | 0 | X X X |
| 0 | 0 | X X X |
|--------------|--------------|--------------|
| 22 | (121)| X X X |
- - --------------->-------------->-------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#--------------------------------------------------------#-----------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |---------------------------#----------------------------|-----------------------------#-----------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |-------------#-------------|-------------#--------------|--------------#--------------|--------------#--------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | 0 | 4 | 298 | 0 | 0 | 0 | 418 | 403
`|`2.`1995` | 0 | 0 | 0 | 0 | 0 | 0 | 387 | 387
`|`3.`1996` | 0 | 0 | 1,006 | 1,242 | 0 | 0 | 90 | 100
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`4.`Totals` | 0 | 4 | 1,304 | 1,242 | 0 | 0 | 895 | 890
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
#--------------#--------------#--------------#-------------#
| | | | |
| 21 | 22 | 23 | 24 |
| | | | Number of |
| Salvage | Unallocated | Total | Claims |
| and | Loss | Net Losses |Outstanding -|
| Subrogation | Expenses | and Expenses | Direct and |
| Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|-------------|
| | | | |
| 2 | 0 | 309 | 0 |
| 0 | 0 | 0 | 0 |
| 204 | 51 | (195)| 0 |
|--------------|--------------|--------------|-------------|
| 206 | 51 | 114 | 0 |
- - --------------->-------------->-------------->------------->
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------#-----------------------------------------#--------------------------------------------#-----------------------------
| | Total Losses and | Loss and Loss Expense Percentage |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Nontabular Discount
| |-------------#-------------#-------------|--------------#--------------#--------------|--------------#--------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net | and Assumed | Ceded | Net | Loss | Expense
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
`|`1.`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|`2.`1995` | 387 | 387 | 0 | 26.4 | 27.3 | 0.0 | 0 | 0
`|`3.`1996` | 1,147 | 1,342 | (195)| 85.5 | 102.5 | (590.9)| 0 | 0
`|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
`|`4.`Totals` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
-------------->------------->------------->------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C>
#--------------#-----------------------------#
| | Net Balance Sheet Reserves |
| 33 | After Discount |
| |--------------#--------------|
|Inter-Company | 34 | 35 |
| Pooling | | Loss |
|Participation | Losses | Expenses |
| Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|
| | | |
| X X X | 294 | 15 |
| 0.0 | 0 | 0 |
| 0.0 | (236)| 41 |
|--------------|--------------|--------------|
| X X X | 58 | 56 |
- - --------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 2A - HOMEOWNERS/FARMOWNERS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#--------------------------------------------------------------------------------------------------------------
| 1 | INCURRED LOSSES AND ALLOCATED EXPENSES REPORTED AT YEAR END ($000 OMITTED)
| |-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Losses Were | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994
| Incurred | | | | | | | |
|-------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|------------
`| "1. "`Prior` | 30,262 | 31,712 | 31,390 | 31,488 | 30,973 | 30,983 | 31,268 | 31,702
`| "2. "`1987` | 145,362 | 133,500 | 131,436 | 129,910 | 126,780 | 126,913 | 126,790 | 126,794
`| "3. "`1988` | X X X | 136,735 | 127,851 | 127,629 | 126,023 | 125,826 | 125,748 | 126,015
`| "4. "`1989` | X X X | X X X | 161,136 | 152,034 | 150,820 | 151,861 | 151,951 | 152,018
`| "5. "`1990` | X X X | X X X | X X X | 148,750 | 139,518 | 140,024 | 140,055 | 141,695
`| "6. "`1991` | X X X | X X X | X X X | X X X | 177,601 | 165,548 | 165,009 | 166,717
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 193,601 | 181,168 | 183,515
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 110,806 | 104,587
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 124,849
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
<C> <C> <C> <C>
- - -----------------------------#-----------------------------#
| Development |
- - -#-------------#-------------|--------------#--------------|
| 10 | 11 | 12 | 13 |
| 1995 | 1996 | One Year | Two Year |
| | | | |
- - -|-------------|-------------|--------------|--------------|
| 31,608 | 31,958 | 350 | 256 |
| 126,768 | 126,586 | (182)| (208)|
| 125,869 | 125,871 | 2 | (144)|
| 152,366 | 152,344 | (22)| 326 |
| 142,073 | 142,181 | 108 | 486 |
| 166,127 | 166,120 | (7)| (597)|
| 184,399 | 184,560 | 161 | 1,045 |
| 105,237 | 105,300 | 63 | 713 |
| 127,143 | 128,273 | 1,130 | 3,424 |
| 103,121 | 102,632 | (489)| X X X |
| X X X | 152,763 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
`12.`Totals"| 1,114 | 5,301 |
------------------------------
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2B - PRIVATE PASSENGER AUTO LIABILITY/MEDICAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 223,033 | 245,172 | 250,801 | 254,563 | 262,004 | 273,649 | 276,058 | 268,871
`| "2. "`1987` | 304,791 | 309,797 | 311,423 | 311,998 | 307,810 | 311,615 | 313,035 | 310,356
`| "3. "`1988` | X X X | 290,352 | 306,371 | 307,939 | 303,789 | 309,816 | 308,953 | 304,613
`| "4. "`1989` | X X X | X X X | 316,824 | 329,170 | 319,809 | 323,141 | 322,897 | 323,560
`| "5. "`1990` | X X X | X X X | X X X | 347,460 | 335,626 | 316,671 | 321,866 | 321,294
`| "6. "`1991` | X X X | X X X | X X X | X X X | 385,248 | 360,209 | 349,892 | 343,261
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 292,169 | 284,470 | 264,871
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 261,413 | 254,678
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 237,688
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
<C> <C> <C> <C>
- - -#-------------#-------------#--------------#--------------#
| 270,864 | 267,228 | (3,636)| (1,643)|
| 310,226 | 310,720 | 494 | 364 |
| 304,145 | 304,786 | 641 | 173 |
| 322,934 | 323,040 | 106 | (520)|
| 320,736 | 319,440 | (1,296)| (1,854)|
| 340,812 | 339,335 | (1,477)| (3,926)|
| 263,913 | 264,244 | 331 | (627)|
| 252,423 | 252,235 | (188)| (2,443)|
| 241,491 | 240,151 | (1,340)| 2,463 |
| 226,608 | 229,530 | 2,922 | X X X |
| X X X | 208,391 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
`12.`Totals"| (3,443)| (8,013)|
--------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2C - COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 321,646 | 322,062 | 325,335 | 349,411 | 344,798 | 350,704 | 350,609 | 347,272
`| "2. "`1987` | 391,334 | 355,821 | 314,506 | 308,358 | 303,308 | 302,538 | 305,408 | 305,149
`| "3. "`1988` | X X X | 283,122 | 291,544 | 301,662 | 286,355 | 285,382 | 284,706 | 287,019
`| "4. "`1989` | X X X | X X X | 302,863 | 269,923 | 282,409 | 279,507 | 274,040 | 272,961
`| "5. "`1990` | X X X | X X X | X X X | 272,448 | 282,049 | 267,172 | 259,560 | 253,921
`| "6. "`1991` | X X X | X X X | X X X | X X X | 264,859 | 249,102 | 229,267 | 221,433
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 208,350 | 188,223 | 183,570
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 160,600 | 153,203
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 140,667
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
<C> <C> <C> <C>
- - -#-------------#-------------#--------------#--------------#
| 345,925 | 346,519 | 594 | (753)|
| 302,479 | 301,776 | (703)| (3,373)|
| 285,769 | 285,926 | 157 | (1,093)|
| 272,516 | 272,427 | (89)| (534)|
| 255,517 | 257,093 | 1,576 | 3,172 |
| 218,939 | 218,860 | (79)| (2,573)|
| 191,709 | 190,321 | (1,388)| 6,751 |
| 150,786 | 146,118 | (4,668)| (7,085)|
| 148,705 | 144,555 | (4,150)| 3,888 |
| 136,308 | 143,846 | 7,538 | X X X |
| X X X | 143,783 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
`12.`Totals"| (1,211)| (1,599)|
--------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2D - WORKERS' COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 1,081,905 | 1,196,411 | 1,322,231 | 1,529,410 | 1,610,860 | 1,651,740 | 1,664,858 | 1,640,434
`| "2. "`1987` | 528,390 | 535,709 | 533,025 | 582,277 | 591,055 | 593,104 | 600,640 | 601,945
`| "3. "`1988` | X X X | 547,255 | 566,395 | 649,353 | 662,294 | 665,861 | 659,412 | 655,142
`| "4. "`1989` | X X X | X X X | 610,914 | 666,961 | 748,530 | 730,721 | 741,083 | 729,070
`| "5. "`1990` | X X X | X X X | X X X | 657,094 | 646,861 | 664,560 | 654,378 | 643,773
`| "6. "`1991` | X X X | X X X | X X X | X X X | 516,236 | 523,835 | 479,995 | 477,928
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 323,139 | 314,115 | 306,960
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 155,557 | 148,923
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 124,711
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
<C> <C> <C> <C>
- - -#-------------#-------------#--------------#--------------#
| 1,625,536 | 1,617,666 | (7,870)| (22,768)|
| 586,403 | 590,490 | 4,087 | (11,455)|
| 652,419 | 647,007 | (5,412)| (8,135)|
| 718,122 | 703,049 | (15,073)| (26,021)|
| 635,251 | 619,271 | (15,980)| (24,502)|
| 472,616 | 453,690 | (18,926)| (24,238)|
| 308,640 | 292,664 | (15,976)| (14,296)|
| 146,679 | 139,378 | (7,301)| (9,545)|
| 129,356 | 124,418 | (4,938)| (293)|
| 140,535 | 136,746 | (3,789)| X X X |
| X X X | 150,642 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
`12.`Totals"| (91,178)| (141,253)|
--------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2E - COMMERCIAL MULTIPLE PERIL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 167,801 | 196,299 | 217,295 | 231,839 | 248,073 | 248,558 | 254,365 | 264,506
`| "2. "`1987` | 169,796 | 146,449 | 152,706 | 182,449 | 183,979 | 192,505 | 193,336 | 191,978
`| "3. "`1988` | X X X | 328,658 | 307,656 | 304,487 | 303,271 | 312,866 | 312,959 | 315,982
`| "4. "`1989` | X X X | X X X | 458,116 | 435,566 | 420,114 | 404,101 | 414,981 | 412,365
`| "5. "`1990` | X X X | X X X | X X X | 444,097 | 466,286 | 456,981 | 446,101 | 446,810
`| "6. "`1991` | X X X | X X X | X X X | X X X | 432,035 | 417,797 | 413,224 | 406,445
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 417,018 | 383,326 | 377,610
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 376,986 | 371,140
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 418,555
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
<C> <C> <C> <C>
- - -#-------------#-------------#--------------#--------------#
| 267,107 | 266,956 | (151)| 2,450 |
| 192,790 | 194,447 | 1,657 | 2,469 |
| 318,517 | 320,767 | 2,250 | 4,785 |
| 410,828 | 410,388 | (440)| (1,977)|
| 450,995 | 445,388 | (5,607)| (1,422)|
| 400,514 | 399,728 | (786)| (6,717)|
| 376,841 | 380,245 | 3,404 | 2,635 |
| 374,486 | 371,898 | (2,588)| 758 |
| 416,887 | 414,542 | (2,345)| (4,013)|
| 422,917 | 423,264 | 347 | X X X |
| X X X | 496,297 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
`12.`Totals"| (4,259)| (1,032)|
--------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 2F - SECTION 1 - MEDICAL MALPRACTICE - OCCURRENCE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#--------------------------------------------------------------------------------------------------------------
| 1 | INCURRED LOSSES AND ALLOCATED EXPENSES REPORTED AT YEAR END ($000 OMITTED)
| |-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Losses Were | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994
| Incurred | | | | | | | |
|-------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|------------
`| "1. "`Prior` | 42,878 | 49,087 | 49,890 | 48,745 | 41,658 | 39,453 | 44,083 | 46,680
`| "2. "`1987` | 7 | 123 | 15 | 17 | 17 | 17 | 17 | 17
`| "3. "`1988` | X X X | 164 | 13 | 37 | 38 | 43 | 43 | 176
`| "4. "`1989` | X X X | X X X | 10 | 20 | 24 | 24 | 24 | 168
`| "5. "`1990` | X X X | X X X | X X X | 10 | 0 | 356 | 358 | 429
`| "6. "`1991` | X X X | X X X | X X X | X X X | 3 | 0 | 35 | 132
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0 | 16
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 0
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
<C> <C> <C> <C>
- - -----------------------------#-----------------------------#
| Development |
- - -#-------------#-------------|--------------#--------------|
| 10 | 11 | 12 | 13 |
| 1995 | 1996 | One Year | Two Year |
| | | | |
- - -|-------------|-------------|--------------|--------------|
| 44,843 | 43,483 | (1,360)| (3,197)|
| 17 | 17 | 0 | 0 |
| 176 | 176 | 0 | 0 |
| 168 | 168 | 0 | 0 |
| 429 | 429 | 0 | 0 |
| 133 | 133 | 0 | 1 |
| 16 | 16 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 4 | 4 | (0)| X X X |
| X X X | 13 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
"""`12.`Totals"| (1,360)| (3,196)|
--------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2F - SECTION 2 - MEDICAL MALPRACTICE - CLAIMS-MADE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 529 | 378 | 397 | 397 | 305 | 305 | 305 | 305
`| "2. "`1987` | 0 | 0 | 95 | 112 | 88 | 88 | 48 | 88
`| "3. "`1988` | X X X | 0 | 198 | 409 | 236 | 231 | 295 | 241
`| "4. "`1989` | X X X | X X X | 176 | 197 | 210 | 378 | 424 | 290
`| "5. "`1990` | X X X | X X X | X X X | 80 | 191 | 333 | 304 | 277
`| "6. "`1991` | X X X | X X X | X X X | X X X | 224 | 224 | 224 | 139
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 191 | 191 | 175
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 40 | 48
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 0
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
" " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " "
<C> <C> <C> <C>
- - -#-------------#-------------#--------------#--------------#
| 305 | 305 | 0 | 0 |
| 88 | 88 | 0 | 0 |
| 381 | 381 | 0 | 140 |
| 308 | 308 | 0 | 18 |
| 302 | 302 | 0 | 25 |
| 139 | 139 | 0 | 0 |
| 175 | 175 | 0 | 0 |
| 49 | 49 | 0 | 1 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | X X X |
| X X X | 0 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
" " " " " " " "`12.`Totals "| 0 | 184 |
--------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2G - SPECIAL LIABILITY (OCEAN MARINE, AIRCRAFT
(ALL PERILS), BOILER AND MACHINERY)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 16,081 | 17,662 | 18,205 | 17,233 | 15,955 | 15,601 | 15,443 | 15,503
`| "2. "`1987` | 34,199 | 33,346 | 33,152 | 31,094 | 30,500 | 31,021 | 31,097 | 31,072
`| "3. "`1988` | X X X | 33,994 | 27,941 | 26,529 | 25,407 | 25,698 | 25,583 | 26,038
`| "4. "`1989` | X X X | X X X | 28,336 | 25,561 | 24,421 | 24,419 | 24,753 | 24,449
`| "5. "`1990` | X X X | X X X | X X X | 24,440 | 21,880 | 21,355 | 20,838 | 20,508
`| "6. "`1991` | X X X | X X X | X X X | X X X | 21,188 | 20,078 | 19,310 | 18,720
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 14,494 | 11,410 | 10,709
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 13,251 | 12,223
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 23,396
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
<C> <C> <C> <C>
- - -#-------------#-------------#--------------#--------------#
| 15,947 | 15,984 | 37 | 481 |
| 30,740 | 30,661 | (79)| (411)|
| 25,447 | 25,506 | 59 | (532)|
| 24,336 | 24,183 | (153)| (266)|
| 20,303 | 20,375 | 72 | (133)|
| 18,609 | 18,452 | (157)| (268)|
| 11,168 | 11,699 | 531 | 990 |
| 12,214 | 11,962 | (252)| (261)|
| 19,380 | 18,766 | (614)| (4,630)|
| 15,466 | 15,160 | (306)| X X X |
| X X X | 17,693 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
"""""`12.`Totals"| (862)| (5,030)|
--------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2H - SECTION 1 - OTHER LIABILITY - OCCURRENCE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 577,199 | 617,452 | 641,866 | 670,095 | 742,041 | 801,414 | 872,842 | 911,088
`| "2. "`1987` | 304,479 | 290,562 | 251,419 | 237,160 | 243,973 | 257,103 | 244,529 | 239,423
`| "3. "`1988` | X X X | 221,807 | 186,050 | 223,022 | 170,605 | 182,232 | 166,662 | 167,931
`| "4. "`1989` | X X X | X X X | 148,722 | 146,744 | 144,171 | 131,353 | 123,285 | 122,390
`| "5. "`1990` | X X X | X X X | X X X | 158,238 | 162,112 | 159,602 | 135,630 | 134,170
`| "6. "`1991` | X X X | X X X | X X X | X X X | 117,691 | 119,176 | 100,542 | 102,021
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 79,111 | 70,653 | 67,306
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 62,750 | 64,680
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 62,989
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
<C> <C> <C> <C>
- - -#-------------#-------------#--------------#--------------#
| 911,818 | 942,416 | 30,598 | 31,328 |
| 236,409 | 237,489 | 1,080 | (1,934)|
| 161,151 | 162,620 | 1,469 | (5,311)|
| 120,974 | 119,470 | (1,504)| (2,920)|
| 138,329 | 132,969 | (5,360)| (1,201)|
| 105,125 | 98,925 | (6,200)| (3,096)|
| 66,230 | 64,611 | (1,619)| (2,695)|
| 60,506 | 58,240 | (2,266)| (6,440)|
| 60,933 | 61,684 | 751 | (1,305)|
| 65,756 | 68,531 | 2,775 | X X X |
| X X X | 73,011 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
""""""`12.`Totals"| 19,724 | 6,426 |
--------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2H - SECTION 2 - OTHER LIABILITY - CLAIMS-MADE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 25 | (43)| (59)| (695)| (116)| 84 | 232 | 768
`| "2. "`1987` | 8 | 0 | 0 | (6)| (6)| (6)| (3)| 182
`| "3. "`1988` | X X X | 205 | 216 | 295 | 813 | 626 | 629 | 656
`| "4. "`1989` | X X X | X X X | 652 | 729 | 754 | 756 | 742 | 887
`| "5. "`1990` | X X X | X X X | X X X | 481 | 433 | 443 | 1,068 | 984
`| "6. "`1991` | X X X | X X X | X X X | X X X | 982 | 613 | 789 | 699
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 1,467 | 1,274 | 1,159
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 602 | 388
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 1,696
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
<C> <C> <C> <C>
- - -#-------------#-------------#--------------#--------------#
| 636 | 4,347 | 3,711 | 3,579 |
| 914 | 222 | (692)| 40 |
| 3,619 | 711 | (2,908)| 55 |
| 1,556 | 1,032 | (524)| 145 |
| 1,737 | 1,175 | (562)| 191 |
| 1,380 | 848 | (532)| 149 |
| 1,269 | 1,355 | 86 | 196 |
| 893 | 1,114 | 221 | 726 |
| 1,386 | 1,410 | 24 | (286)|
| 3,060 | 759 | (2,301)| X X X |
| X X X | 4,799 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
""""""""""""`12.`Totals"| (3,477)| 4,795 |
--------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 2I - SPECIAL PROPERTY (FIRE, ALLIED LINES, INLAND MARINE,
EARTHQUAKE, GLASS, BURGLARY AND THEFT)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#--------------------------------------------------------------------------------------------------------------
| 1 | INCURRED LOSSES AND ALLOCATED EXPENSES REPORTED AT YEAR END ($000 OMITTED)
| |-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Losses Were | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994
| Incurred | | | | | | | |
|-------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|------------
`| "1. "`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 69,802
`| "2. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`| "3. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
<C> <C> <C> <C>
- - -----------------------------#-----------------------------#
| Development |
- - -#-------------#-------------|--------------#--------------|
| 10 | 11 | 12 | 13 |
| 1995 | 1996 | One Year | Two Year |
| | | | |
- - -|-------------|-------------|--------------|--------------|
| 64,135 | 59,085 | (5,050)| (10,717)|
| 71,387 | 69,528 | (1,859)| X X X |
| X X X | 106,314 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
"""""""""""""""`4.`Totals"`| (6,909)| (10,717)|
--------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2J - AUTO PHYSICAL DAMAGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 31,616
`| "2. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`| "3. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
<C> <C> <C> <C>
- - -#-------------#-------------#--------------#--------------#
| 30,729 | 27,164 | (3,565)| (4,452)|
| 134,601 | 134,202 | (399)| X X X |
| X X X | 139,422 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
"""`4.`Totals"`| (3,964)| (4,452)|
--------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2K - FIDELITY/SURETY
<S> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 49,839
`| "2. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`| "3. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
- - -#-------------#-------------#--------------#--------------#
| 63,936 | 64,489 | 553 | 14,650 |
| 37,505 | 44,130 | 6,625 | X X X |
| X X X | 48,134 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
""""""""`4.`Totals"`| 7,178 | 14,650 |
--------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2L - OTHER (INCLUDING CREDIT, ACCIDENT AND HEALTH)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 146
`| "2. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`| "3. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
" " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " "
<C> <C> <C> <C>
- - -#-------------#-------------#--------------#--------------#
| 109 | 448 | 339 | 302 |
| 19 | 31 | 12 | X X X |
| X X X | 22 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
" " " " " " " "`4.`Totals "`| 351 | 302 |
--------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2M - INTERNATIONAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`| "2. "`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`| "3. "`1988` | X X X | 18,581 | 18,142 | 17,663 | 15,821 | 16,002 | 16,042 | 15,837
`| "4. "`1989` | X X X | X X X | 13,397 | 13,678 | 13,166 | 12,957 | 12,682 | 12,634
`| "5. "`1990` | X X X | X X X | X X X | 13,549 | 14,227 | 13,373 | 11,855 | 11,729
`| "6. "`1991` | X X X | X X X | X X X | X X X | 12,266 | 11,005 | 9,587 | 9,475
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 4,919 | 5,134 | 4,373
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 10,048 | 10,090
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 59,360
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
<C> <C> <C> <C>
- - -#-------------#-------------#--------------#--------------#
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 15,813 | 15,331 | (482)| (506)|
| 12,638 | 12,347 | (291)| (287)|
| 11,791 | 11,574 | (217)| (155)|
| 9,579 | 8,621 | (958)| (854)|
| 3,865 | 3,843 | (22)| (530)|
| 8,808 | 7,067 | (1,741)| (3,023)|
| 59,170 | 51,324 | (7,846)| (8,036)|
| 108,525 | 101,661 | (6,864)| X X X |
| X X X | 129,338 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
"""""""""`12.`Totals"| (18,421)| (13,391)|
--------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 2N - REINSURANCE A
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#--------------------------------------------------------------------------------------------------------------
| 1 | INCURRED LOSSES AND ALLOCATED EXPENSES REPORTED AT YEAR END ($000 OMITTED)
| |-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Losses Were | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994
| Incurred | | | | | | | |
|-------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|------------
`| "1. "`1988` | X X X | 34,100 | 28,393 | 25,499 | 15,105 | 14,671 | 15,673 | 15,892
`| "2. "`1989` | X X X | X X X | 24,435 | 26,489 | 25,917 | 25,756 | 19,376 | 17,716
`| "3. "`1990` | X X X | X X X | X X X | 26,318 | 27,156 | 26,452 | 15,630 | 13,776
`| "4. "`1991` | X X X | X X X | X X X | X X X | 36,977 | 30,203 | 14,467 | 12,857
`| "5. "`1992` | X X X | X X X | X X X | X X X | X X X | 30,035 | 25,947 | 13,826
`| "6. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 39,518 | 34,997
`| "7. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 44,637
`| "8. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
<C> <C> <C> <C>
- - -----------------------------#-----------------------------#
| Development |
- - -#-------------#-------------|--------------#--------------|
| 10 | 11 | 12 | 13 |
| 1995 | 1996 | One Year | Two Year |
| | | | |
- - -|-------------|-------------|--------------|--------------|
| 15,472 | 15,268 | (204)| (624)|
| 17,992 | 17,487 | (505)| (229)|
| 14,098 | 14,170 | 72 | 394 |
| 12,057 | 10,970 | (1,087)| (1,887)|
| 12,681 | 12,081 | (600)| (1,745)|
| 14,310 | 12,736 | (1,574)| (22,261)|
| 33,917 | 21,366 | (12,551)| (23,271)|
| 41,879 | 33,786 | (8,093)| X X X |
| X X X | 24,714 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
""""""""""""""""`10.`Totals"| (24,542)| (49,623)|
--------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2O - REINSURANCE B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`1988` | X X X | 21,132 | 18,019 | 15,891 | 8,671 | 8,506 | 9,222 | 9,254
`| "2. "`1989` | X X X | X X X | 20,774 | 20,740 | 19,070 | 19,009 | 17,682 | 17,168
`| "3. "`1990` | X X X | X X X | X X X | 11,804 | 12,076 | 12,087 | 9,180 | 8,751
`| "4. "`1991` | X X X | X X X | X X X | X X X | 13,104 | 12,164 | 7,008 | 6,216
`| "5. "`1992` | X X X | X X X | X X X | X X X | X X X | 24,398 | 21,163 | 16,675
`| "6. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 15,174 | 15,134
`| "7. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 111,651
`| "8. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
<C> <C> <C> <C>
- - -#-------------#-------------#--------------#--------------#
| 9,012 | 8,850 | (162)| (404)|
| 17,784 | 16,984 | (800)| (184)|
| 8,700 | 8,784 | 84 | 33 |
| 5,819 | 4,886 | (933)| (1,330)|
| 15,544 | 15,403 | (141)| (1,272)|
| 10,764 | 10,487 | (277)| (4,647)|
| 91,927 | 84,595 | (7,332)| (27,056)|
| 46,679 | 39,953 | (6,727)| X X X |
| X X X | 43,063 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
""""""""""`10.`Totals"| (16,288)| (34,860)|
--------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2P - REINSURANCE C
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`1988` | X X X | 0 | 200 | 200 | 200 | 200 | 401 | 394
`| "2. "`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0 | 0
`| "3. "`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0 | 0
`| "4. "`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0 | 0
`| "5. "`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0 | 0
`| "6. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`| "7. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 0
`| "8. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
" " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " "
<C> <C> <C> <C>
- - -#-------------#-------------#--------------#--------------#
| 394 | 443 | 49 | 49 |
| (405)| 0 | 405 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 1,486 | 1,216 | (270)| X X X |
| X X X | 899 | X X X | X X X |
- - ->------------->-------------|--------------|--------------|
" " " " " " " "`10.`Totals "| 184 | 49 |
--------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2Q - REINSURANCE D
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 12,421 | 11,911 | 11,578 | 12,102 | 11,233 | 11,389 | 10,231 | 10,336
`| "2. "`1987` | 39,253 | 36,884 | 36,116 | 36,095 | 33,673 | 33,196 | 33,746 | 33,752
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
" " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " "
<C> <C> <C> <C>
- - -#-------------#-------------#--------------#--------------#
| 10,558 | 10,658 | 100 | 322 |
| 33,613 | 33,927 | 314 | 175 |
- - ->------------->-------------|--------------|--------------|
" " " " " " " " "3.`Totals "| 414 | 497 |
--------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 2R - SECTION 1 - PRODUCTS LIABILITY - OCCURRENCE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#--------------------------------------------------------------------------------------------------------------
| 1 | INCURRED LOSSES AND ALLOCATED EXPENSES REPORTED AT YEAR END ($000 OMITTED)
| |-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Losses Were | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994
| Incurred | | | | | | | |
|-------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|------------
`| "1. "`Prior` | 97,843 | 120,285 | 126,435 | 142,053 | 158,537 | 162,747 | 180,222 | 186,420
`| "2. "`1987` | 31,769 | 30,772 | 32,980 | 34,006 | 29,612 | 28,674 | 32,160 | 34,264
`| "3. "`1988` | X X X | 21,475 | 22,525 | 28,761 | 18,114 | 19,826 | 23,523 | 24,635
`| "4. "`1989` | X X X | X X X | 18,447 | 19,272 | 14,518 | 14,585 | 16,861 | 16,836
`| "5. "`1990` | X X X | X X X | X X X | 13,429 | 11,459 | 11,088 | 11,645 | 11,419
`| "6. "`1991` | X X X | X X X | X X X | X X X | 10,317 | 11,241 | 12,329 | 14,724
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 7,732 | 6,729 | 7,334
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 7,244 | 6,017
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 4,402
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
<C> <C> <C> <C>
- - -----------------------------#-----------------------------#
| Development |
- - -#-------------#-------------|--------------#--------------|
| 10 | 11 | 12 | 13 |
| 1995 | 1996 | One Year | Two Year |
| | | | |
- - -|-------------|-------------|--------------|--------------|
| 189,181 | 190,591 | 1,410 | 4,171 |
| 33,958 | 34,596 | 638 | 332 |
| 25,235 | 24,713 | (522)| 78 |
| 16,561 | 16,079 | (482)| (757)|
| 11,438 | 10,495 | (943)| (924)|
| 15,768 | 15,629 | (139)| 905 |
| 7,620 | 7,300 | (320)| (34)|
| 6,218 | 7,259 | 1,041 | 1,242 |
| 3,416 | 2,318 | (1,098)| (2,084)|
| 3,021 | 3,134 | 113 | X X X |
| X X X | 3,281 | X X X | X X X |
- - -------------->-------------|--------------|--------------|
`12.`Totals"| (302)| 2,929 |
--------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2R - SECTION 2 - PRODUCTS LIABILITY - CLAIMS-MADE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 3 | 0
`| "2. "`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`| "3. "`1988` | X X X | 7 | 12 | 13 | 13 | 13 | 13 | 13
`| "4. "`1989` | X X X | X X X | 1 | 12 | 18 | 18 | 20 | 18
`| "5. "`1990` | X X X | X X X | X X X | 120 | 239 | 340 | 426 | 427
`| "6. "`1991` | X X X | X X X | X X X | X X X | 208 | 164 | 184 | 176
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 91 | 379 | 31
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 870 | 2,778
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 69
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
<C> <C> <C> <C>
- - -#-------------#-------------#--------------#--------------#
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 25 | 34 | 9 | 21 |
| 45 | 54 | 9 | 36 |
| 471 | 446 | (25)| 19 |
| 199 | 205 | 6 | 29 |
| 46 | 43 | (3)| 12 |
| 3,038 | 3,161 | 123 | 383 |
| 697 | 550 | (147)| 481 |
| 259 | 81 | (178)| X X X |
| X X X | 18 | X X X | X X X |
- - -------------->-------------|--------------|--------------|
`12.`Totals"| (206)| 981 |
--------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2S - FINANCIAL GUARANTY/MORTGAGE GUARANTY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 675
`| " " "`10`Yr`Prior`| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`| " " "`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`| " " "`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0 | 0
`| " " "`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0 | 0
`| " " "`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0 | 0
`| " " "`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0 | 0
`| " " "`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0 | 0
`| " " "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`| " " "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 35
`| "2. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`| "3. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
<C> <C> <C> <C>
- - -#-------------#-------------#--------------#--------------#
| 292 | (40)| (332)| (715)|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| (1)| 0 | 1 | (35)|
| 29 | 0 | (29)| X X X |
| X X X | (245)| X X X | X X X |
- - --------------->-------------|--------------|--------------|
4.`Totals"| (360)| (715)|
--------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 3A - HOMEOWNERS/FARMOWNERS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#--------------------------------------------------------------------------------------------------------------
| 1 | CUMULATIVE PAID LOSSES AND ALLOCATED EXPENSES AT YEAR END ($000 OMITTED)
| |-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
| Years in Which | | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994
| | | | | | | | |
|-------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|------------
`| "1. "`Prior` | 000 | 12,303 | 20,022 | 23,519 | 26,775 | 28,025 | 29,107 | 30,534
`| "2. "`1987` | 81,167 | 110,930 | 116,296 | 119,779 | 121,830 | 123,370 | 124,308 | 124,802
`| "3. "`1988` | X X X | 82,160 | 113,632 | 117,560 | 121,324 | 122,770 | 124,064 | 124,549
`| "4. "`1989` | X X X | X X X | 99,281 | 139,429 | 144,266 | 147,076 | 149,106 | 149,971
`| "5. "`1990` | X X X | X X X | X X X | 93,167 | 127,235 | 132,665 | 135,782 | 138,181
`| "6. "`1991` | X X X | X X X | X X X | X X X | 113,582 | 151,510 | 157,213 | 161,119
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 126,000 | 167,477 | 174,935
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 74,300 | 95,473
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 91,779
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -----------------------------#-------------#-------------#
| 12 | 13 |
- - -#-------------#-------------| Number of | Number of |
| | | Claims | Claims |
| 10 | 11 | Closed | Closed |
| 1995 | 1996 | With Loss | Without |
| | | Payment |Loss Payment |
- - -|-------------|-------------|-------------|-------------|
| 30,800 | 30,914 | 1,370 | 917 |
| 124,957 | 125,279 | 48,563 | 13,951 |
| 124,800 | 124,964 | 45,355 | 13,806 |
| 150,451 | 151,295 | 58,036 | 17,014 |
| 139,247 | 140,761 | 50,648 | 16,114 |
| 162,679 | 163,354 | 56,267 | 18,082 |
| 179,036 | 181,108 | 48,947 | 16,346 |
| 100,004 | 101,892 | 40,551 | 14,508 |
| 116,309 | 121,730 | 45,460 | 13,589 |
| 64,447 | 92,701 | 31,280 | 10,762 |
| X X X | 114,425 | 42,602 | 13,832 |
- - --------------->------------->------------->------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3B - PRIVATE PASSENGER AUTO LIABILITY/MEDICAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 000 | 108,485 | 179,353 | 211,192 | 228,528 | 235,163 | 240,784 | 244,249
`| "2. "`1987` | 104,327 | 201,126 | 250,938 | 281,233 | 295,486 | 299,963 | 305,518 | 307,167
`| "3. "`1988` | X X X | 97,953 | 198,613 | 248,864 | 278,369 | 289,753 | 296,001 | 300,006
`| "4. "`1989` | X X X | X X X | 101,192 | 212,293 | 265,295 | 292,120 | 306,485 | 314,861
`| "5. "`1990` | X X X | X X X | X X X | 104,882 | 213,998 | 254,821 | 286,373 | 304,196
`| "6. "`1991` | X X X | X X X | X X X | X X X | 108,560 | 216,732 | 277,512 | 309,305
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 85,873 | 171,685 | 210,176
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 83,315 | 158,817
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 78,675
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -#-------------#-------------#-------------#-------------#
| 247,181 | 249,655 | 14,443 | 6,106 |
| 308,177 | 308,691 | 97,856 | 37,906 |
| 301,689 | 302,073 | 93,280 | 35,819 |
| 318,436 | 319,598 | 92,761 | 35,801 |
| 310,254 | 312,768 | 87,209 | 33,602 |
| 321,938 | 330,053 | 78,934 | 32,161 |
| 236,614 | 250,580 | 65,594 | 28,162 |
| 203,719 | 227,922 | 55,635 | 23,865 |
| 150,228 | 193,782 | 50,843 | 23,019 |
| 79,481 | 151,102 | 46,528 | 21,955 |
| X X X | 71,744 | 33,553 | 16,030 |
- - --------------->------------->------------->------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3C - COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 000 | 142,444 | 231,936 | 285,571 | 310,092 | 328,077 | 334,900 | 339,521
`| "2. "`1987` | 61,095 | 145,291 | 203,988 | 245,594 | 274,061 | 285,955 | 292,793 | 296,674
`| "3. "`1988` | X X X | 60,080 | 139,053 | 201,965 | 243,146 | 260,397 | 268,986 | 277,713
`| "4. "`1989` | X X X | X X X | 51,868 | 127,921 | 193,076 | 229,864 | 248,073 | 259,743
`| "5. "`1990` | X X X | X X X | X X X | 51,439 | 132,153 | 177,937 | 211,206 | 230,879
`| "6. "`1991` | X X X | X X X | X X X | X X X | 43,431 | 104,957 | 151,165 | 182,233
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 31,098 | 73,152 | 118,777
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 25,880 | 63,242
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 27,266
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -#-------------#-------------#-------------#-------------#
| 340,100 | 341,618 | 8,644 | 4,378 |
| 297,924 | 298,696 | 52,099 | 21,750 |
| 279,906 | 282,319 | 47,377 | 19,441 |
| 264,459 | 268,560 | 43,971 | 17,506 |
| 241,591 | 248,006 | 39,858 | 16,644 |
| 200,444 | 210,293 | 32,125 | 14,715 |
| 158,595 | 173,677 | 27,161 | 13,490 |
| 100,923 | 122,358 | 22,283 | 11,354 |
| 65,078 | 98,744 | 20,510 | 10,094 |
| 28,194 | 67,476 | 16,585 | 8,420 |
| X X X | 28,906 | 13,027 | 6,615 |
- - --------------->------------->------------->------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3D - WORKERS' COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 000 | 230,323 | 384,402 | 510,083 | 616,017 | 694,484 | 764,949 | 845,987
`| "2. "`1987` | 127,476 | 262,831 | 330,325 | 378,370 | 419,643 | 440,887 | 453,900 | 466,879
`| "3. "`1988` | X X X | 132,278 | 279,538 | 367,993 | 424,742 | 461,087 | 481,115 | 497,719
`| "4. "`1989` | X X X | X X X | 132,318 | 307,603 | 412,167 | 471,076 | 511,904 | 537,667
`| "5. "`1990` | X X X | X X X | X X X | 131,068 | 279,877 | 365,754 | 420,467 | 449,608
`| "6. "`1991` | X X X | X X X | X X X | X X X | 102,910 | 208,085 | 270,790 | 309,820
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 66,055 | 137,483 | 175,188
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 30,004 | 62,080
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 21,887
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -#-------------#-------------#-------------#-------------#
| 912,114 | 950,453 | 26,026 | 4,553 |
| 477,517 | 484,428 | 39,786 | 4,007 |
| 513,821 | 522,959 | 42,694 | 4,327 |
| 550,910 | 562,384 | 44,652 | 4,871 |
| 464,146 | 478,185 | 41,632 | 4,679 |
| 327,157 | 341,644 | 35,907 | 4,734 |
| 197,693 | 216,724 | 27,545 | 4,585 |
| 78,291 | 94,529 | 18,483 | 3,096 |
| 53,776 | 74,136 | 14,216 | 2,488 |
| 25,179 | 60,851 | 10,103 | 1,566 |
| X X X | 34,680 | 6,090 | 1,106 |
- - --------------->------------->------------->------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3E - COMMERCIAL MULTIPLE PERIL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 000 | 68,635 | 119,662 | 163,297 | 189,473 | 212,194 | 224,476 | 231,872
`| "2. "`1987` | 53,661 | 89,211 | 107,156 | 123,977 | 156,006 | 172,963 | 177,270 | 180,526
`| "3. "`1988` | X X X | 76,340 | 144,648 | 174,450 | 214,079 | 243,297 | 263,206 | 277,784
`| "4. "`1989` | X X X | X X X | 107,105 | 191,421 | 249,666 | 292,770 | 326,053 | 349,041
`| "5. "`1990` | X X X | X X X | X X X | 118,896 | 204,136 | 255,940 | 302,906 | 340,160
`| "6. "`1991` | X X X | X X X | X X X | X X X | 114,986 | 180,550 | 229,123 | 269,987
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 102,008 | 180,206 | 221,046
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 110,882 | 179,790
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 131,051
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -#-------------#-------------#-------------#-------------#
| 241,738 | 246,982 | 5,097 | 5,431 |
| 183,313 | 185,593 | 21,743 | 12,073 |
| 288,373 | 292,797 | 38,134 | 21,468 |
| 363,834 | 374,018 | 51,462 | 28,190 |
| 375,334 | 390,136 | 49,264 | 29,271 |
| 302,707 | 322,678 | 45,577 | 28,987 |
| 258,941 | 292,804 | 41,173 | 27,422 |
| 223,255 | 263,918 | 43,066 | 30,055 |
| 212,733 | 261,197 | 47,674 | 32,842 |
| 126,684 | 209,705 | 43,872 | 30,069 |
| X X X | 158,487 | 40,222 | 25,537 |
- - --------------->------------->------------->------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 3F - SECTION 1 - MEDICAL MALPRACTICE - OCCURRENCE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#--------------------------------------------------------------------------------------------------------------
| 1 | CUMULATIVE PAID LOSSES AND ALLOCATED EXPENSES AT YEAR END ($000 OMITTED)
| |-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
| Years in Which | | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994
| | | | | | | | |
|-------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|------------
`| "1. "`Prior` | 000 | 11,296 | 19,403 | 25,645 | 27,175 | 30,296 | 32,222 | 34,070
`| "2. "`1987` | 7 | 7 | 11 | 17 | 17 | 17 | 17 | 17
`| "3. "`1988` | X X X | 0 | 0 | 4 | 38 | 43 | 43 | 176
`| "4. "`1989` | X X X | X X X | 8 | 7 | 24 | 24 | 24 | 168
`| "5. "`1990` | X X X | X X X | X X X | 0 | 0 | 19 | 358 | 429
`| "6. "`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 35 | 132
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0 | 16
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 0
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -----------------------------#-------------#-------------#
| 12 | 13 |
- - -#-------------#-------------| Number of | Number of |
| | | Claims | Claims |
| 10 | 11 | Closed | Closed |
| 1995 | 1996 | With Loss |Without Loss |
| | | Payment | Payment |
- - -|-------------|-------------|-------------|-------------|
| 38,765 | 40,599 | 427 | 467 |
| 17 | 17 | 2 | 3 |
| 176 | 176 | 2 | 2 |
| 167 | 168 | 2 | 2 |
| 428 | 429 | 1 | 3 |
| 133 | 133 | 1 | 0 |
| 15 | 16 | 0 | 0 |
| 0 | 0 | 0 | 1 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| X X X | 0 | 0 | 0 |
- - --------------->------------->------------->------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3F - SECTION 2 - MEDICAL MALPRACTICE - CLAIMS-MADE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 000 | 362 | 397 | 397 | 305 | 305 | 305 | 305
`| "2. "`1987` | 0 | 0 | 0 | 24 | 24 | 24 | 24 | 24
`| "3. "`1988` | X X X | 0 | 1 | 101 | 117 | 120 | 141 | 141
`| "4. "`1989` | X X X | X X X | 1 | 9 | 25 | 240 | 255 | 255
`| "5. "`1990` | X X X | X X X | X X X | 1 | 10 | 99 | 266 | 266
`| "6. "`1991` | X X X | X X X | X X X | X X X | 0 | 4 | 9 | 9
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 3 | 3
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 0
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -#-------------#-------------#-------------#-------------#
| 305 | 305 | 7 | 1 |
| 24 | 24 | 0 | 0 |
| 219 | 219 | 0 | 0 |
| 257 | 258 | 0 | 2 |
| 265 | 265 | 0 | 0 |
| 15 | 15 | 0 | 0 |
| 38 | 38 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| X X X | 0 | 0 | 0 |
- - --------------->------------->------------->------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3G - SPECIAL LIABILITY (OCEAN MARINE, AIRCRAFT
(ALL PERILS), BOILER AND MACHINERY)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 000 | 5,559 | 10,245 | 13,063 | 13,651 | 13,855 | 13,946 | 14,177
`| "2. "`1987` | 9,533 | 17,862 | 24,502 | 26,695 | 27,769 | 28,522 | 28,827 | 29,388
`| "3. "`1988` | X X X | 9,231 | 16,454 | 19,180 | 20,912 | 22,588 | 23,225 | 23,657
`| "4. "`1989` | X X X | X X X | 11,402 | 16,737 | 19,342 | 21,705 | 22,545 | 22,938
`| "5. "`1990` | X X X | X X X | X X X | 7,945 | 14,633 | 16,945 | 18,666 | 19,327
`| "6. "`1991` | X X X | X X X | X X X | X X X | 9,730 | 15,533 | 17,363 | 17,506
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 5,677 | 8,448 | 9,314
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 5,338 | 8,613
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 8,973
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -#-------------#-------------#-------------#-------------#
| 14,804 | 14,826 | X X X | X X X |
| 29,648 | 29,699 | X X X | X X X |
| 24,143 | 24,292 | X X X | X X X |
| 23,078 | 23,178 | X X X | X X X |
| 19,434 | 19,775 | X X X | X X X |
| 17,830 | 17,992 | X X X | X X X |
| 10,442 | 11,548 | X X X | X X X |
| 9,913 | 10,636 | X X X | X X X |
| 14,660 | 16,138 | X X X | X X X |
| 3,486 | 7,177 | X X X | X X X |
| X X X | 4,038 | X X X | X X X |
- - --------------->------------->------------->------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3H - SECTION 1 - OTHER LIABILITY - OCCURRENCE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 000 | 159,788 | 313,859 | 425,171 | 499,885 | 552,778 | 613,470 | 654,956
`| "2. "`1987` | 21,818 | 52,420 | 87,499 | 122,123 | 157,422 | 173,081 | 190,522 | 198,401
`| "3. "`1988` | X X X | 10,761 | 27,514 | 48,724 | 72,687 | 102,251 | 114,779 | 124,652
`| "4. "`1989` | X X X | X X X | 8,733 | 21,122 | 36,345 | 52,958 | 65,520 | 80,578
`| "5. "`1990` | X X X | X X X | X X X | 11,619 | 25,544 | 48,198 | 65,946 | 75,342
`| "6. "`1991` | X X X | X X X | X X X | X X X | 5,929 | 15,617 | 27,507 | 41,441
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 3,682 | 8,472 | 16,937
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 3,122 | 9,074
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 4,508
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -#-------------#-------------#-------------#-------------#
| 682,642 | 713,283 | 9,075 | 11,144 |
| 203,030 | 204,463 | 16,761 | 11,673 |
| 128,679 | 132,204 | 13,000 | 8,216 |
| 87,768 | 91,580 | 8,419 | 6,180 |
| 86,808 | 92,631 | 8,234 | 7,167 |
| 50,730 | 59,186 | 5,857 | 5,031 |
| 23,619 | 29,667 | 3,223 | 3,192 |
| 17,951 | 23,446 | 2,306 | 2,257 |
| 9,740 | 16,878 | 1,927 | 2,263 |
| 4,408 | 10,577 | 1,645 | 2,336 |
| X X X | 3,864 | 1,272 | 2,234 |
- - --------------->------------->------------->------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3H - SECTION 2 - OTHER LIABILITY - CLAIMS-MADE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------
`| "1. "`Prior` | 000 | 143 | 209 | 162 | 245 | 217 | 272 | 339
`| "2. "`1987` | 0 | 0 | 0 | (6)| (6)| (6)| (6)| (6)
`| "3. "`1988` | X X X | 69 | 111 | 218 | 225 | 626 | 626 | 626
`| "4. "`1989` | X X X | X X X | 248 | 446 | 640 | 687 | 730 | 762
`| "5. "`1990` | X X X | X X X | X X X | 143 | 269 | 285 | 949 | 984
`| "6. "`1991` | X X X | X X X | X X X | X X X | 159 | 234 | 301 | 469
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 88 | 854 | 915
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 85 | 142
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 124
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
------------------->------------->------------->------------->------------->------------->------------->------------->-------------
<C> <C> <C> <C>
#-------------#-------------#-------------#-------------#
| 376 | 746 | 7 | 0 |
| (6)| (6)| 1 | 4 |
| 627 | 628 | 78 | 45 |
| 793 | 819 | 132 | 67 |
| 984 | 984 | 87 | 74 |
| 644 | 646 | 80 | 85 |
| 936 | 1,054 | 72 | 75 |
| 235 | 270 | 39 | 51 |
| 697 | 759 | 26 | 42 |
| 123 | 161 | 106 | 179 |
| X X X | 263 | 384 | 618 |
- - -------------->------------->------------->------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 3I - SPECIAL PROPERTY (FIRE, ALLIED LINES, INLAND MARINE,
EARTHQUAKE, GLASS, BURGLARY AND THEFT)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#--------------------------------------------------------------------------------------------------------------
| 1 | CUMULATIVE PAID LOSSES AND ALLOCATED EXPENSES AT YEAR END ($000 OMITTED)
| |-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
| Years in Which | | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994
| | | | | | | | |
|-------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|------------
`| "1. "`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 000
`| "2. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`| "3. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -----------------------------#-------------#-------------#
| 12 | 13 |
- - -#-------------#-------------| Number of | Number of |
| | | Claims | Claims |
| 10 | 11 | Closed | Closed |
| 1995 | 1996 | With Loss |Without Loss |
| | | Payment | Payment |
- - -|-------------|-------------|-------------|-------------|
| 28,646 | 37,664 | X X X | X X X |
| 38,378 | 62,717 | X X X | X X X |
| X X X | 64,668 | X X X | X X X |
- - --------------->------------->------------->------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3J - AUTO PHYSICAL DAMAGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. `Prior` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 000
`| "2. `1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`| "3. `1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -#-------------#-------------#-------------#-------------#
| 16,336 | 17,254 | 7,570 | 2,038 |
| 113,069 | 131,141 | 79,864 | 19,406 |
| X X X | 121,242 | 77,992 | 17,742 |
- - --------------->------------->------------->------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3K - FIDELITY/SURETY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. `Prior` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 000
`| "2. `1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`| "3. `1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -#-------------#-------------#-------------#-------------#
| 39,204 | 52,813 | X X X | X X X |
| 11,703 | 30,461 | X X X | X X X |
| X X X | 6,354 | X X X | X X X |
- - --------------->------------->------------->------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3L - OTHER (INCLUDING CREDIT, ACCIDENT AND HEALTH)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. `Prior` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 000
`| "2. `1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`| "3. `1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -#-------------#-------------#-------------#-------------#
| 26 | 66 | X X X | X X X |
| 7 | 25 | X X X | X X X |
| X X X | 0 | X X X | X X X |
- - --------------->------------->------------->------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3M - INTERNATIONAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. `Prior` | 000 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`| "2. `1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`| "3. `1988` | X X X | 4,610 | 10,615 | 12,406 | 13,164 | 13,562 | 13,619 | 14,006
`| "4. `1989` | X X X | X X X | 3,850 | 8,531 | 9,812 | 10,323 | 10,358 | 10,554
`| "5. `1990` | X X X | X X X | X X X | 3,585 | 8,889 | 10,293 | 10,486 | 10,579
`| "6. `1991` | X X X | X X X | X X X | X X X | 4,478 | 6,649 | 7,364 | 7,495
`| "7. `1992` | X X X | X X X | X X X | X X X | X X X | 1,232 | 2,920 | 3,289
`| "8. `1993` | X X X | X X X | X X X | X X X | X X X | X X X | 355 | 4,210
`| "9. `1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 11,028
`|`10. `1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. `1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -#-------------#-------------#-------------#-------------#
| 0 | 0 | X X X | X X X |
| 0 | 0 | X X X | X X X |
| 14,105 | 14,165 | X X X | X X X |
| 10,616 | 10,913 | X X X | X X X |
| 10,644 | 10,788 | X X X | X X X |
| 7,599 | 7,681 | X X X | X X X |
| 3,355 | 3,387 | X X X | X X X |
| 5,737 | 6,236 | X X X | X X X |
| 32,217 | 41,028 | X X X | X X X |
| 29,683 | 67,641 | X X X | X X X |
| X X X | 42,036 | X X X | X X X |
- - --------------->------------->------------->------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 3N - REINSURANCE A
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#--------------------------------------------------------------------------------------------------------------
| 1 | CUMULATIVE PAID LOSSES AND ALLOCATED EXPENSES AT YEAR END ($000 OMITTED)
| |-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Losses Were | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994
| Incurred | | | | | | | |
| | | | | | | | |
|-------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|------------
`| "1. "`1988` | X X X | 2,283 | 4,302 | 5,753 | 6,950 | 9,296 | 10,510 | 11,344
`| "2. "`1989` | X X X | X X X | 5,873 | 8,625 | 10,264 | 11,671 | 12,053 | 12,706
`| "3. "`1990` | X X X | X X X | X X X | 4,784 | 6,108 | 9,592 | 9,867 | 10,474
`| "4. "`1991` | X X X | X X X | X X X | X X X | 1,301 | 4,570 | 5,463 | 6,311
`| "5. "`1992` | X X X | X X X | X X X | X X X | X X X | 6,875 | 2,140 | 3,467
`| "6. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 1,083 | 2,716
`| "7. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 1,553
`| "8. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -----------------------------#-------------#-------------#
| 12 | 13 |
- - -#-------------#-------------| Number of | Number of |
| 10 | 11 | Claims | Claims |
| 1995 | 1996 | Closed | Closed |
| | | With Loss |Without Loss |
| | | Payment | Payment |
- - -|-------------|-------------|-------------|-------------|
| 11,719 | 11,852 | X X X | X X X |
| 13,374 | 13,605 | X X X | X X X |
| 10,680 | 10,779 | X X X | X X X |
| 6,852 | 7,171 | X X X | X X X |
| 5,319 | 5,786 | X X X | X X X |
| 4,023 | 4,616 | X X X | X X X |
| 5,022 | 6,487 | X X X | X X X |
| 4,428 | 10,219 | X X X | X X X |
| X X X | 1,738 | X X X | X X X |
- - --------------->------------->------------->------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3O - REINSURANCE B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`1988` | X X X | 1,108 | 2,954 | 3,793 | 4,770 | 5,650 | 6,476 | 6,912
`| "2. "`1989` | X X X | X X X | 10,817 | 11,867 | 12,902 | 13,472 | 13,773 | 14,103
`| "3. "`1990` | X X X | X X X | X X X | 1,567 | 2,232 | 6,826 | 7,073 | 7,516
`| "4. "`1991` | X X X | X X X | X X X | X X X | 402 | 1,555 | 2,022 | 2,525
`| "5. "`1992` | X X X | X X X | X X X | X X X | X X X | 10,626 | 10,354 | 10,995
`| "6. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 485 | 1,922
`| "7. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 4,276
`| "8. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -#-------------#-------------#-------------#-------------#
| 7,171 | 7,272 | X X X | X X X |
| 14,429 | 14,540 | X X X | X X X |
| 7,617 | 7,888 | X X X | X X X |
| 2,523 | 2,670 | X X X | X X X |
| 11,438 | 11,859 | X X X | X X X |
| 3,389 | 4,187 | X X X | X X X |
| 37,046 | 42,563 | X X X | X X X |
| 9,432 | 11,700 | X X X | X X X |
| X X X | 1,223 | X X X | X X X |
- - --------------->------------->------------->------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3P - REINSURANCE C
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`1988` | X X X | 0 | 200 | 200 | 200 | 200 | 401 | 394
`| "2. "`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0 | 0
`| "3. "`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0 | 0
`| "4. "`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0 | 0
`| "5. "`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0 | 0
`| "6. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 0 | 0
`| "7. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 0
`| "8. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -#-------------#-------------#-------------#-------------#
| 394 | 394 | X X X | X X X |
| 0 | 0 | X X X | X X X |
| 0 | 0 | X X X | X X X |
| 0 | 0 | X X X | X X X |
| 0 | 0 | X X X | X X X |
| 0 | 0 | X X X | X X X |
| 0 | 0 | X X X | X X X |
| 213 | 492 | X X X | X X X |
| X X X | 41 | X X X | X X X |
- - --------------->------------->------------->------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3Q - REINSURANCE D
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 000 | 5,006 | 7,294 | 8,924 | 9,670 | 10,216 | 9,327 | 9,539
`| "2. "`1987` | 9,028 | 20,313 | 25,654 | 27,625 | 28,886 | 29,549 | 29,830 | 30,416
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -#-------------#-------------#-------------#-------------#
| 9,637 | 9,821 | X X X | X X X |
| 30,535 | 30,858 | X X X | X X X |
- - --------------->------------->------------->------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 3R - SECTION 1 - PRODUCTS LIABILITY - OCCURRENCE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#--------------------------------------------------------------------------------------------------------------
| 1 | CUMULATIVE PAID LOSSES AND ALLOCATED EXPENSES AT YEAR END ($000 OMITTED)
| |-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Losses Were | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994
| Incurred | | | | | | | |
| | | | | | | | |
|-------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|------------
`| "1. "`Prior` | 000 | 24,172 | 52,410 | 79,152 | 99,831 | 112,330 | 121,402 | 124,727
`| "2. "`1987` | 1,046 | 3,165 | 6,478 | 13,019 | 19,099 | 22,219 | 23,955 | 26,482
`| "3. "`1988` | X X X | 168 | 2,599 | 6,118 | 10,643 | 12,598 | 15,102 | 16,285
`| "4. "`1989` | X X X | X X X | 375 | 2,727 | 5,374 | 8,197 | 11,508 | 12,860
`| "5. "`1990` | X X X | X X X | X X X | 459 | 1,290 | 2,326 | 4,785 | 7,087
`| "6. "`1991` | X X X | X X X | X X X | X X X | 434 | 1,152 | 4,246 | 6,632
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 205 | 559 | 1,724
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 1,218 | 1,751
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 53
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -----------------------------#-------------#-------------#
| 12 | 13 |
- - -#-------------#-------------| Number of | Number of |
| 10 | 11 | Claims | Claims |
| 1995 | 1996 | Closed | Closed |
| | | With Loss |Without Loss |
| | | Payment | Payment |
- - -|-------------|-------------|-------------|-------------|
| 131,802 | 137,629 | 1,498 | 4,431 |
| 27,303 | 28,081 | 578 | 664 |
| 17,632 | 18,815 | 439 | 461 |
| 13,539 | 13,762 | 492 | 484 |
| 7,916 | 8,454 | 477 | 469 |
| 9,737 | 11,275 | 303 | 318 |
| 3,276 | 4,455 | 172 | 301 |
| 2,428 | 3,526 | 131 | 107 |
| 188 | 375 | 46 | 65 |
| 63 | 137 | 32 | 38 |
| X X X | 24 | 17 | 52 |
- - ->------------->------------->------------->------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3R - SECTION 2 - PRODUCTS LIABILITY - CLAIMS-MADE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | 000 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`| "2. "`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
`| "3. "`1988` | X X X | 1 | 5 | 13 | 13 | 13 | 13 | 13
`| "4. "`1989` | X X X | X X X | 0 | 4 | 18 | 18 | 18 | 18
`| "5. "`1990` | X X X | X X X | X X X | 20 | 170 | 291 | 427 | 427
`| "6. "`1991` | X X X | X X X | X X X | X X X | 21 | 55 | 167 | 176
`| "7. "`1992` | X X X | X X X | X X X | X X X | X X X | 7 | 31 | 31
`| "8. "`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 20 | 560
`| "9. "`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 28
`|`10. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -#-------------#-------------#-------------#-------------#
| 0 | 0 | 0 | 0 |
| 0 | 0 | 1 | 0 |
| 21 | 21 | 5 | 4 |
| 37 | 37 | 2 | 2 |
| 430 | 429 | 6 | 3 |
| 176 | 172 | 7 | 7 |
| 32 | 31 | 1 | 5 |
| 1,213 | 2,361 | 21 | 39 |
| 123 | 480 | 13 | 34 |
| 1 | 1 | 4 | 4 |
| X X X | 1 | 10 | 24 |
- - ->------------->------------->------------->------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3S - FINANCIAL GUARANTY/MORTGAGE GUARANTY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
!-------------------#-------------#-------------#-------------#-------------#-------------#-------------#-------------#------------
`| "1. "`Prior` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | 000
`| "2. "`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`| "3. "`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->------------->------------->------------->------------->------------->------------->------------->------------
<C> <C> <C> <C>
- - -#-------------#-------------#-------------#-------------#
| (207)| (350)| X X X | X X X |
| 0 | 0 | X X X | X X X |
| X X X | 0 | X X X | X X X |
- - ->------------->------------->------------->------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 4A - HOMEOWNERS/FARMOWNERS
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#-----------------------------------------------------------------------------------------------
| 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END ($000
| |---------------#---------------#---------------#---------------#---------------#---------------
| Years in Which | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
| | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------
`| "1. " "`Prior` | 12,010 | 8,082 | 4,742 | 3,562 | 1,523 | 1,131
`| "2. " "`1987` | 34,155 | 14,953 | 10,076 | 6,872 | 2,075 | 1,617
`| "3. " "`1988` | X X X | 26,295 | 8,421 | 5,420 | 2,061 | 1,322
`| "4. " "`1989` | X X X | X X X | 29,666 | 7,917 | 3,082 | 2,177
`| "5. " "`1990` | X X X | X X X | X X X | 23,709 | 5,481 | 3,249
`| "6. " "`1991` | X X X | X X X | X X X | X X X | 23,758 | 5,380
`| "7. " "`1992` | X X X | X X X | X X X | X X X | X X X | 21,121
`| "8. " "`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. " "`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
- - ----------------------------------------------------------------#
OMITTED) |
#---------------#---------------#---------------#---------------|
| | | | |
| 8 | 9 | 10 | 11 |
| 1993 | 1994 | 1995 | 1996 |
| | | | |
|---------------|---------------|---------------|---------------|
| 730 | 564 | 586 | 629 |
| 1,208 | 1,229 | 1,149 | 966 |
| 716 | 837 | 696 | 572 |
| 918 | 1,051 | 795 | 557 |
| 1,085 | 1,342 | 1,069 | 734 |
| 2,233 | 2,246 | 1,503 | 1,079 |
| 4,065 | 3,128 | 1,958 | 956 |
| 13,203 | 3,855 | 2,507 | 1,777 |
| X X X | 9,823 | 4,031 | 2,632 |
| X X X | X X X | 12,586 | 4,289 |
| X X X | X X X | X X X | 12,571 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4B - PRIVATE PASSENGER AUTO LIABILITY/MEDICAL
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#---------------#---------------#---------------#---------------#---------------#---------------
`| "1. " "`Prior` | 68,882 | 40,975 | 17,564 | 9,469 | 4,630 | 15,112
`| "2. " "`1987` | 103,906 | 47,311 | 24,405 | 12,642 | 4,094 | 6,719
`| "3. " "`1988` | X X X | 96,297 | 47,988 | 24,379 | 7,878 | 12,097
`| "4. " "`1989` | X X X | X X X | 111,802 | 54,484 | 19,139 | 11,678
`| "5. " "`1990` | X X X | X X X | X X X | 135,932 | 57,289 | 23,091
`| "6. " "`1991` | X X X | X X X | X X X | X X X | 154,555 | 65,941
`| "7. " "`1992` | X X X | X X X | X X X | X X X | X X X | 105,163
`| "8. " "`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. " "`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| 15,037 | 6,424 | 8,681 | 5,193 |
| 4,856 | 1,834 | 1,318 | 1,829 |
| 8,460 | 1,680 | 1,526 | 2,134 |
| 5,459 | 2,674 | 2,232 | 1,030 |
| 11,912 | 5,933 | 5,000 | 2,859 |
| 28,461 | 11,805 | 7,276 | 3,548 |
| 48,488 | 16,977 | 7,361 | 3,975 |
| 81,218 | 29,932 | 12,937 | 5,198 |
| X X X | 70,286 | 33,508 | 15,798 |
| X X X | X X X | 63,996 | 27,468 |
| X X X | X X X | X X X | 57,864 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4C - COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#---------------#---------------#---------------#---------------#---------------#---------------
`| "1. " "`Prior` | 155,905 | 69,129 | 27,974 | 28,329 | 12,183 | 11,609
`| "2. " "`1987` | 248,615 | 133,340 | 59,272 | 29,793 | 9,555 | 6,531
`| "3. " "`1988` | X X X | 149,682 | 82,498 | 51,411 | 15,394 | 8,560
`| "4. " "`1989` | X X X | X X X | 178,608 | 70,725 | 39,054 | 23,430
`| "5. " "`1990` | X X X | X X X | X X X | 152,903 | 89,729 | 45,468
`| "6. " "`1991` | X X X | X X X | X X X | X X X | 151,345 | 82,415
`| "7. " "`1992` | X X X | X X X | X X X | X X X | X X X | 119,462
`| "8. " "`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. " "`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| 10,067 | 4,286 | 1,886 | 1,851 |
| 7,344 | 5,760 | 2,649 | 1,643 |
| 5,279 | 3,144 | 1,959 | 1,512 |
| 11,156 | 5,226 | 2,942 | 1,648 |
| 18,673 | 6,206 | 4,443 | 3,155 |
| 37,215 | 12,740 | 6,265 | 3,948 |
| 52,964 | 18,052 | 10,384 | 5,287 |
| 84,090 | 41,406 | 19,934 | 8,395 |
| X X X | 62,293 | 37,785 | 15,811 |
| X X X | X X X | 61,959 | 36,841 |
| X X X | X X X | X X X | 72,209 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4D - WORKERS' COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#---------------#---------------#---------------#---------------#---------------#---------------
`| "1. " "`Prior` | 287,199 | 200,158 | 203,852 | 320,449 | 321,333 | 365,575
`| "2. " "`1987` | 241,685 | 124,486 | 69,265 | 87,101 | 72,384 | 63,395
`| "3. " "`1988` | X X X | 240,532 | 113,291 | 129,212 | 98,149 | 82,500
`| "4. " "`1989` | X X X | X X X | 257,388 | 168,478 | 164,927 | 122,043
`| "5. " "`1990` | X X X | X X X | X X X | 302,452 | 167,879 | 139,459
`| "6. " "`1991` | X X X | X X X | X X X | X X X | 201,174 | 171,488
`| "7. " "`1992` | X X X | X X X | X X X | X X X | X X X | 111,171
`| "8. " "`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. " "`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| 407,876 | 290,132 | 269,753 | 262,072 |
| 83,342 | 65,764 | 58,514 | 53,743 |
| 86,842 | 72,401 | 62,224 | 60,242 |
| 118,277 | 99,698 | 90,534 | 72,393 |
| 125,937 | 106,344 | 95,222 | 76,583 |
| 104,600 | 91,620 | 82,112 | 61,839 |
| 80,128 | 62,847 | 62,154 | 43,128 |
| 67,534 | 49,724 | 40,880 | 25,446 |
| X X X | 55,310 | 40,769 | 29,160 |
| X X X | X X X | 66,973 | 42,939 |
| X X X | X X X | X X X | 64,420 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4E - COMMERCIAL MULTIPLE PERIL
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#---------------#---------------#---------------#---------------#---------------#---------------
`| "1. " "`Prior` | 80,200 | 56,847 | 46,311 | 33,639 | 28,615 | 17,943
`| "2. " "`1987` | 79,374 | 34,475 | 27,072 | 42,558 | 8,503 | 12,476
`| "3. " "`1988` | X X X | 181,058 | 117,500 | 83,612 | 47,275 | 42,361
`| "4. " "`1989` | X X X | X X X | 272,787 | 184,073 | 117,913 | 70,317
`| "5. " "`1990` | X X X | X X X | X X X | 240,641 | 194,651 | 139,082
`| "6. " "`1991` | X X X | X X X | X X X | X X X | 234,305 | 176,395
`| "7. " "`1992` | X X X | X X X | X X X | X X X | X X X | 225,071
`| "8. " "`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. " "`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| 16,330 | 18,214 | 15,351 | 13,034 |
| 10,554 | 7,004 | 6,122 | 5,540 |
| 29,455 | 25,471 | 22,009 | 19,290 |
| 57,597 | 41,504 | 32,722 | 27,244 |
| 91,692 | 58,644 | 52,970 | 40,897 |
| 123,218 | 81,495 | 62,760 | 50,610 |
| 146,435 | 91,681 | 68,081 | 48,076 |
| 181,370 | 128,112 | 92,740 | 63,451 |
| X X X | 188,526 | 130,738 | 94,784 |
| X X X | X X X | 187,862 | 147,063 |
| X X X | X X X | X X X | 225,710 |
>--------------->--------------->--------------->--------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 4F - SECTION 1 - MEDICAL MALPRACTICE - OCCURRENCE
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#-----------------------------------------------------------------------------------------------
| 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END ($000
| |---------------#---------------#---------------#---------------#---------------#---------------
| Years in Which | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
| | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------
`| "1. " "`Prior` | 16,520 | 13,263 | 10,107 | 9,483 | 5,707 | 3,594
`| "2. " "`1987` | 0 | 96 | 1 | 0 | 0 | 0
`| "3. " "`1988` | X X X | 165 | 4 | 9 | 0 | 0
`| "4. " "`1989` | X X X | X X X | 2 | 4 | 0 | 0
`| "5. " "`1990` | X X X | X X X | X X X | 5 | 0 | 88
`| "6. " "`1991` | X X X | X X X | X X X | X X X | 3 | 0
`| "7. " "`1992` | X X X | X X X | X X X | X X X | X X X | 0
`| "8. " "`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. " "`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
- - ----------------------------------------------------------------#
OMITTED) |
#---------------#---------------#---------------#---------------|
| | | | |
| 8 | 9 | 10 | 11 |
| 1993 | 1994 | 1995 | 1996 |
| | | | |
|---------------|---------------|---------------|---------------|
| 6,233 | 6,243 | 2,556 | 1,392 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| X X X | 0 | 0 | 0 |
| X X X | X X X | 4 | 4 |
| X X X | X X X | X X X | 13 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4F - SECTION 2 - MEDICAL MALPRACTICE - CLAIMS-MADE
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#---------------#---------------#---------------#---------------#---------------#---------------
`| "1. " "`Prior` | 138 | 5 | 0 | 0 | 0 | 0
`| "2. " "`1987` | 0 | 0 | 94 | 88 | 64 | 55
`| "3. " "`1988` | X X X | 0 | 163 | 280 | 0 | 0
`| "4. " "`1989` | X X X | X X X | 161 | 129 | 0 | 0
`| "5. " "`1990` | X X X | X X X | X X X | 73 | 30 | 0
`| "6. " "`1991` | X X X | X X X | X X X | X X X | 212 | 200
`| "7. " "`1992` | X X X | X X X | X X X | X X X | X X X | 177
`| "8. " "`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. " "`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| 0 | 0 | 0 | 0 |
| 24 | 64 | 64 | 64 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 97 | 125 | 122 | 122 |
| 135 | 2 | 65 | 65 |
| 40 | 36 | 48 | 48 |
| X X X | 0 | 0 | 0 |
| X X X | X X X | 0 | 0 |
| X X X | X X X | X X X | 0 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4G - SPECIAL LIABILITY (OCEAN MARINE, AIRCRAFT
(ALL PERILS), BOILER AND MACHINERY)
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#---------------#---------------#---------------#---------------#---------------#---------------
`| "1. " "`Prior` | 3,724 | 2,478 | 1,867 | 845 | 167 | 138
`| "2. " "`1987` | 11,245 | 5,428 | 3,595 | 1,491 | 367 | 383
`| "3. " "`1988` | X X X | 11,836 | 3,750 | 1,624 | 353 | 189
`| "4. " "`1989` | X X X | X X X | 7,701 | 1,995 | 617 | 294
`| "5. " "`1990` | X X X | X X X | X X X | 6,682 | 1,759 | 1,050
`| "6. " "`1991` | X X X | X X X | X X X | X X X | 5,660 | 2,064
`| "7. " "`1992` | X X X | X X X | X X X | X X X | X X X | 4,727
`| "8. " "`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. " "`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| 227 | 200 | 250 | 234 |
| 863 | 767 | 630 | 626 |
| 771 | 1,038 | 619 | 624 |
| 453 | 556 | 582 | 453 |
| 189 | 170 | 319 | 200 |
| 318 | 224 | 228 | 120 |
| 547 | 248 | 207 | (30)|
| 3,631 | 1,048 | 628 | 214 |
| X X X | 6,389 | 1,725 | 826 |
| X X X | X X X | 4,990 | 3,298 |
| X X X | X X X | X X X | 7,093 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4H - SECTION 1 - OTHER LIABILITY - OCCURRENCE
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#---------------#---------------#---------------#---------------#---------------#---------------
`| "1. " "`Prior` | 359,485 | 275,826 | 184,734 | 135,526 | 147,286 | 158,973
`| "2. " "`1987` | 255,083 | 201,512 | 128,329 | 87,279 | 61,191 | 63,292
`| "3. " "`1988` | X X X | 188,732 | 130,153 | 145,770 | 66,435 | 61,503
`| "4. " "`1989` | X X X | X X X | 124,748 | 104,146 | 82,543 | 55,293
`| "5. " "`1990` | X X X | X X X | X X X | 125,630 | 109,041 | 90,026
`| "6. " "`1991` | X X X | X X X | X X X | X X X | 99,252 | 88,196
`| "7. " "`1992` | X X X | X X X | X X X | X X X | X X X | 67,953
`| "8. " "`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. " "`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| 200,473 | 197,490 | 171,464 | 168,117 |
| 42,081 | 32,233 | 27,816 | 28,344 |
| 36,881 | 32,617 | 26,484 | 25,741 |
| 41,007 | 32,690 | 27,434 | 24,566 |
| 55,009 | 39,034 | 39,440 | 30,738 |
| 55,756 | 43,133 | 38,355 | 32,223 |
| 48,984 | 36,142 | 29,524 | 23,871 |
| 52,753 | 43,097 | 34,025 | 25,702 |
| X X X | 51,975 | 43,282 | 35,844 |
| X X X | X X X | 52,208 | 46,938 |
| X X X | X X X | X X X | 59,553 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4H - SECTION 2 - OTHER LIABILITY - CLAIMS-MADE
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#---------------#---------------#---------------#---------------#---------------#---------------
`| "1. " "`Prior` | 7 | (54)| (77)| (252)| (100)| (37)
`| "2. " "`1987` | 2 | 0 | 0 | 0 | 0 | 0
`| "3. " "`1988` | X X X | 40 | 30 | 23 | 162 | 0
`| "4. " "`1989` | X X X | X X X | 116 | 83 | 32 | 20
`| "5. " "`1990` | X X X | X X X | X X X | 99 | 45 | 45
`| "6. " "`1991` | X X X | X X X | X X X | X X X | 217 | 98
`| "7. " "`1992` | X X X | X X X | X X X | X X X | X X X | 348
`| "8. " "`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. " "`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| 89 | 167 | 235 | 713 |
| 3 | 187 | 720 | 227 |
| 3 | 30 | 1,381 | 84 |
| 0 | 44 | 668 | 184 |
| 119 | 0 | 753 | 191 |
| 174 | 80 | 605 | 201 |
| 212 | 164 | 249 | 201 |
| 303 | 127 | 382 | 421 |
| X X X | 1,215 | 374 | 408 |
| X X X | X X X | 1,787 | 393 |
| X X X | X X X | X X X | 1,976 |
>--------------->--------------->--------------->--------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 4I - SPECIAL PROPERTY (FIRE, ALLIED LINES, INLAND MARINE,
EARTHQUAKE, GLASS, BURGLARY AND THEFT)
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#-----------------------------------------------------------------------------------------------
| 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END ($000
| |---------------#---------------#---------------#---------------#---------------#---------------
| Years in Which | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
| | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------
`| "1. " "`Prior` | X X X | X X X | X X X | X X X | X X X | X X X
`| "2. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`| "3. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
- - ----------------------------------------------------------------#
OMITTED) |
#---------------#---------------#---------------#---------------|
| | | | |
| 8 | 9 | 10 | 11 |
| 1993 | 1994 | 1995 | 1996 |
| | | | |
|---------------|---------------|---------------|---------------|
| X X X | 21,141 | 14,265 | 9,751 |
| X X X | X X X | 9,175 | 1,766 |
| X X X | X X X | X X X | 11,848 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4J - AUTO PHYSICAL DAMAGE
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#---------------#---------------#---------------#---------------#---------------#---------------
`| "1. " "`Prior` | X X X | X X X | X X X | X X X | X X X | X X X
`| "2. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`| "3. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| X X X | 9,365 | 8,806 | 6,228 |
| X X X | X X X | 2,559 | 1,395 |
| X X X | X X X | X X X | 951 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4K - FIDELITY/SURETY
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#---------------#---------------#---------------#---------------#---------------#---------------
`| "1. " "`Prior` | X X X | X X X | X X X | X X X | X X X | X X X
`| "2. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`| "3. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| X X X | 24,217 | 8,402 | (1,962)|
| X X X | X X X | 23,189 | 12,699 |
| X X X | X X X | X X X | 38,709 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4L - OTHER (INCLUDING CREDIT, ACCIDENT AND HEALTH)
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#---------------#---------------#---------------#---------------#---------------#---------------
`| "1. " "`Prior` | X X X | X X X | X X X | X X X | X X X | X X X
`| "2. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`| "3. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| X X X | 15 | 3 | 315 |
| X X X | X X X | 2 | 1 |
| X X X | X X X | X X X | 4 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4M - INTERNATIONAL
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#---------------#---------------#---------------#---------------#---------------#---------------
`| "1. " "`Prior | 0 | 0 | 0 | 0 | 0 | 0
`| "2. " "`1987` | 0 | 0 | 0 | 0 | 0 | 0
`| "3. " "`1988` | X X X | 6,976 | 4,332 | 3,098 | 1,388 | 1,425
`| "4. " "`1989` | X X X | X X X | 4,930 | 2,760 | 1,775 | 1,523
`| "5. " "`1990` | X X X | X X X | X X X | 5,303 | 3,754 | 2,259
`| "6. " "`1991` | X X X | X X X | X X X | X X X | 5,740 | 3,247
`| "7. " "`1992` | X X X | X X X | X X X | X X X | X X X | 2,293
`| "8. " "`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. " "`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 1,694 | 1,280 | 1,289 | 823 |
| 1,444 | 1,383 | 1,365 | 959 |
| 958 | 840 | 875 | 559 |
| 1,728 | 1,573 | 1,593 | 605 |
| 1,735 | 893 | 409 | 315 |
| 4,466 | 3,344 | 1,673 | 288 |
| X X X | 31,206 | 12,458 | 3,015 |
| X X X | X X X | 37,856 | 9,881 |
| X X X | X X X | X X X | 38,894 |
>--------------->--------------->--------------->--------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 4N - REINSURANCE A
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#-----------------------------------------------------------------------------------------------
| |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END ($000
| 1 |---------------#---------------#---------------#---------------#---------------#---------------
| | | | | | |
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7
| Losses Were | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
| Incurred | | | | | |
| | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------
`| "1. " "`1988` | X X X | 29,167 | 20,669 | 16,864 | 5,599 | 3,332
`| "2. " "`1989` | X X X | X X X | 14,575 | 13,294 | 13,088 | 11,443
`| "3. " "`1990` | X X X | X X X | X X X | 17,082 | 17,746 | 15,433
`| "4. " "`1991` | X X X | X X X | X X X | X X X | 32,597 | 23,320
`| "5. " "`1992` | X X X | X X X | X X X | X X X | X X X | 23,417
`| "6. " "`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "7. " "`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`| "8. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
- - ----------------------------------------------------------------#
OMITTED) |
#---------------#---------------#---------------#---------------|
| | | | |
| 8 | 9 | 10 | 11 |
| 1993 | 1994 | 1995 | 1996 |
| | | | |
| | | | |
|---------------|---------------|---------------|---------------|
| 3,611 | 3,268 | 3,109 | 2,753 |
| 4,941 | 3,073 | 3,335 | 2,846 |
| 5,074 | 2,651 | 2,399 | 2,051 |
| 6,916 | 4,601 | 4,208 | 2,879 |
| 18,544 | 8,047 | 6,076 | 5,284 |
| 34,972 | 29,485 | 8,402 | 6,123 |
| X X X | 39,946 | 26,126 | 13,384 |
| X X X | X X X | 32,234 | 21,576 |
| X X X | X X X | X X X | 20,813 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4O - REINSURANCE B
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#---------------#---------------#---------------#---------------#---------------#---------------
`| "1. " "`1988` | X X X | 18,119 | 12,928 | 10,228 | 2,583 | 1,598
`| "2. " "`1989` | X X X | X X X | 6,987 | 5,714 | 4,607 | 3,651
`| "3. " "`1990` | X X X | X X X | X X X | 5,534 | 5,443 | 4,686
`| "4. " "`1991` | X X X | X X X | X X X | X X X | 11,230 | 9,210
`| "5. " "`1992` | X X X | X X X | X X X | X X X | X X X | 13,383
`| "6. " "`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "7. " "`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`| "8. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| 1,815 | 1,581 | 1,525 | 1,258 |
| 2,163 | 1,683 | 2,398 | 1,665 |
| 1,822 | 978 | 841 | 572 |
| 4,051 | 2,801 | 2,789 | 1,691 |
| 8,784 | 5,030 | 3,439 | 2,870 |
| 11,992 | 11,012 | 5,506 | 4,816 |
| X X X | 80,513 | 41,682 | 31,329 |
| X X X | X X X | 30,696 | 22,608 |
| X X X | X X X | X X X | 44,594 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4P - REINSURANCE C
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#---------------#---------------#---------------#---------------#---------------#---------------
`| "1. " "`1988` | X X X | 0 | 0 | 0 | 0 | 0
`| "2. " "`1989` | X X X | X X X | 0 | 0 | 0 | 0
`| "3. " "`1990` | X X X | X X X | X X X | 0 | 0 | 0
`| "4. " "`1991` | X X X | X X X | X X X | X X X | 0 | 0
`| "5. " "`1992` | X X X | X X X | X X X | X X X | X X X | 0
`| "6. " "`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "7. " "`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`| "8. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| 0 | 0 | 0 | 35 |
| 0 | 0 | (405)| 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| X X X | 0 | 0 | 0 |
| X X X | X X X | 1,044 | 669 |
| X X X | X X X | X X X | 773 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4Q - REINSURANCE D
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#---------------#---------------#---------------#---------------#---------------#---------------
`| "1. " "`Prior` | 8,014 | 3,815 | 2,331 | 1,858 | 816 | 590
`| "2. " "`1987` | 20,805 | 10,661 | 6,768 | 5,997 | 2,624 | 2,139
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| 442 | 332 | 402 | 405 |
| 2,492 | 1,960 | 2,023 | 2,060 |
>--------------->--------------->--------------->--------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 4R - SECTION 1 - PRODUCTS LIABILITY - OCCURRENCE
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#-----------------------------------------------------------------------------------------------
| |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END ($000
| 1 |---------------#---------------#---------------#---------------#---------------#---------------
| | | | | | |
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7
| Losses Were | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
| Incurred | | | | | |
| | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------
`| "1. " "`Prior` | 40,684 | 35,702 | 23,112 | 25,149 | 30,209 | 34,186
`| "2. " "`1987` | 24,856 | 18,904 | 15,562 | 11,129 | 6,489 | 4,705
`| "3. " "`1988` | X X X | 17,164 | 13,768 | 14,915 | 4,998 | 5,183
`| "4. " "`1989` | X X X | X X X | 13,345 | 9,827 | 5,407 | 3,061
`| "5. " "`1990` | X X X | X X X | X X X | 10,345 | 7,066 | 5,154
`| "6. " "`1991` | X X X | X X X | X X X | X X X | 7,951 | 6,021
`| "7. " "`1992` | X X X | X X X | X X X | X X X | X X X | 6,687
`| "8. " "`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. " "`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
- - ----------------------------------------------------------------#
OMITTED) |
#---------------#---------------#---------------#---------------|
| | | | |
| 8 | 9 | 10 | 11 |
| 1993 | 1994 | 1995 | 1996 |
| | | | |
| | | | |
|---------------|---------------|---------------|---------------|
| 40,436 | 42,337 | 34,420 | 31,508 |
| 5,581 | 6,108 | 5,204 | 4,720 |
| 5,022 | 4,682 | 4,051 | 3,503 |
| 3,546 | 2,410 | 2,152 | 1,473 |
| 4,032 | 2,607 | 2,577 | 1,585 |
| 4,756 | 3,787 | 3,542 | 2,320 |
| 4,483 | 3,316 | 2,712 | 1,730 |
| 5,486 | 3,296 | 2,758 | 2,018 |
| X X X | 3,916 | 2,271 | 1,605 |
| X X X | X X X | 2,808 | 2,460 |
| X X X | X X X | X X X | 2,943 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4R - SECTION 2 - PRODUCTS LIABILITY - CLAIMS-MADE
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#---------------#---------------#---------------#---------------#---------------#---------------
`| "1. " "`Prior` | 0 | 0 | 0 | 0 | 0 | 0
`| "2. " "`1987` | 0 | 0 | 0 | 0 | 0 | 0
`| "3. " "`1988` | X X X | 2 | 2 | 0 | 0 | 0
`| "4. " "`1989` | X X X | X X X | 0 | 2 | 0 | 0
`| "5. " "`1990` | X X X | X X X | X X X | 29 | 19 | 14
`| "6. " "`1991` | X X X | X X X | X X X | X X X | 52 | 31
`| "7. " "`1992` | X X X | X X X | X X X | X X X | X X X | 24
`| "8. " "`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9. " "`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| 3 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 4 | 13 |
| 2 | 0 | 8 | 17 |
| 0 | 0 | 22 | 17 |
| 12 | 0 | 23 | 33 |
| 348 | 0 | 15 | 11 |
| 0 | 767 | 466 | 191 |
| X X X | 17 | 224 | 31 |
| X X X | X X X | 91 | 28 |
| X X X | X X X | X X X | 0 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4S - FINANCIAL GUARANTY/MORTGAGE GUARANTY
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#---------------#---------------#---------------#---------------#---------------#---------------
`| "1. " "`Prior` | X X X | X X X | X X X | X X X | X X X | X X X
`| "2. " "`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`| "3. " "`1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| X X X | 678 | 503 | 313 |
| X X X | X X X | 29 | 0 |
| X X X | X X X | X X X | (245)|
>--------------->--------------->--------------->--------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 5A - HOMEOWNERS/FARMOWNERS
SECTION 1
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS CLOSED WITH LOSS PAYMENT DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 8,604 | 9,314 | 9,631 | 9,787 | 9,863 | 9,900
`| "2.`1987` | 39,976 | 47,812 | 48,267 | 48,430 | 48,502 | 48,530
`| "3.`1988` | X X X | 36,822 | 44,675 | 45,104 | 45,245 | 45,299
`| "4.`1989` | X X X | X X X | 45,458 | 57,280 | 57,761 | 57,873
`| "5.`1990` | X X X | X X X | X X X | 41,803 | 49,959 | 50,380
`| "6.`1991` | X X X | X X X | X X X | X X X | 48,082 | 55,541
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 38,391
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 9,932 | 9,956 | 9,971 | 9,974 |
| 48,547 | 48,554 | 48,558 | 48,563 |
| 45,334 | 45,345 | 45,352 | 45,355 |
| 57,977 | 58,018 | 58,029 | 58,036 |
| 50,535 | 50,611 | 50,634 | 50,648 |
| 56,031 | 56,174 | 56,242 | 56,267 |
| 48,135 | 48,717 | 48,884 | 48,947 |
| 34,695 | 40,155 | 40,462 | 40,551 |
| X X X | 40,577 | 45,183 | 45,460 |
| X X X | X X X | 26,459 | 31,280 |
| X X X | X X X | X X X | 42,602 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | NUMBER OF CLAIMS OUTSTANDING DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 1,171 | 565 | 286 | 133 | 87 | 57
`| "2.`1987` | 5,333 | 535 | 268 | 121 | 67 | 38
`| "3.`1988` | X X X | 5,142 | 531 | 202 | 91 | 60
`| "4.`1989` | X X X | X X X | 7,258 | 466 | 202 | 140
`| "5.`1990` | X X X | X X X | X X X | 5,587 | 524 | 255
`| "6.`1991` | X X X | X X X | X X X | X X X | 6,035 | 688
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 8,030
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 34 | 16 | 6 | 7 |
| 17 | 8 | 6 | 2 |
| 27 | 19 | 9 | 3 |
| 73 | 35 | 22 | 14 |
| 138 | 72 | 42 | 28 |
| 273 | 145 | 61 | 37 |
| 671 | 267 | 160 | 100 |
| 4,769 | 420 | 181 | 93 |
| X X X | 3,932 | 439 | 228 |
| X X X | X X X | 4,079 | 427 |
| X X X | X X X | X X X | 3,920 |
- - ------------------>---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 3
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS REPORTED DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 6,017 | 6,570 | 6,882 | 6,992 | 7,064 | 7,086
`| "2.`1987` | 56,274 | 61,804 | 62,281 | 62,410 | 62,476 | 62,491
`| "3.`1988` | X X X | 52,745 | 58,575 | 58,953 | 59,063 | 59,113
`| "4.`1989` | X X X | X X X | 65,825 | 74,342 | 74,788 | 74,924
`| "5.`1990` | X X X | X X X | X X X | 60,292 | 66,197 | 66,580
`| "6.`1991` | X X X | X X X | X X X | X X X | 68,967 | 73,856
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 58,905
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 7,108 | 7,122 | 7,134 | 7,140 |
| 62,505 | 62,506 | 62,509 | 62,513 |
| 59,141 | 59,154 | 59,160 | 59,163 |
| 75,009 | 75,045 | 75,061 | 75,064 |
| 66,704 | 66,752 | 66,778 | 66,790 |
| 74,221 | 74,331 | 74,367 | 74,386 |
| 64,711 | 65,183 | 65,340 | 65,393 |
| 51,745 | 54,835 | 55,079 | 55,152 |
| X X X | 56,372 | 59,065 | 59,277 |
| X X X | X X X | 39,517 | 42,469 |
| X X X | X X X | X X X | 60,354 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 5B - PRIVATE PASSENGER AUTO LIABILITY/MEDICAL
SECTION 1
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS CLOSED WITH LOSS PAYMENT DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 33,227 | 40,910 | 44,690 | 46,285 | 46,969 | 47,258
`| "2.`1987` | 66,519 | 89,677 | 94,642 | 96,687 | 97,425 | 97,635
`| "3.`1988` | X X X | 61,656 | 86,175 | 90,682 | 92,357 | 92,845
`| "4.`1989` | X X X | X X X | 61,004 | 86,392 | 90,430 | 91,685
`| "5.`1990` | X X X | X X X | X X X | 59,745 | 81,619 | 84,878
`| "6.`1991` | X X X | X X X | X X X | X X X | 53,800 | 72,786
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 44,092
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 47,429 | 47,524 | 47,620 | 47,670 |
| 97,768 | 97,821 | 97,847 | 97,856 |
| 93,104 | 93,201 | 93,258 | 93,280 |
| 92,317 | 92,588 | 92,710 | 92,761 |
| 86,273 | 86,853 | 87,108 | 87,209 |
| 76,475 | 78,057 | 78,672 | 78,934 |
| 60,766 | 63,949 | 65,131 | 65,594 |
| 38,474 | 52,206 | 54,744 | 55,635 |
| X X X | 36,301 | 48,734 | 50,843 |
| X X X | X X X | 34,954 | 46,528 |
| X X X | X X X | X X X | 33,553 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | NUMBER OF CLAIMS OUTSTANDING DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 11,959 | 5,472 | 2,778 | 1,273 | 684 | 467
`| "2.`1987` | 22,254 | 5,316 | 2,606 | 1,078 | 430 | 233
`| "3.`1988` | X X X | 22,424 | 5,395 | 2,213 | 920 | 500
`| "4.`1989` | X X X | X X X | 23,512 | 4,956 | 2,122 | 1,181
`| "5.`1990` | X X X | X X X | X X X | 20,334 | 4,588 | 2,336
`| "6.`1991` | X X X | X X X | X X X | X X X | 20,267 | 5,704
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 19,021
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 338 | 262 | 202 | 163 |
| 101 | 50 | 26 | 16 |
| 217 | 125 | 53 | 28 |
| 533 | 238 | 111 | 53 |
| 1,134 | 486 | 226 | 117 |
| 2,675 | 1,168 | 544 | 272 |
| 4,859 | 2,055 | 984 | 478 |
| 15,838 | 3,925 | 1,731 | 857 |
| X X X | 14,252 | 3,484 | 1,661 |
| X X X | X X X | 13,420 | 3,501 |
| X X X | X X X | X X X | 13,115 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 3
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS REPORTED DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 20,854 | 25,147 | 27,962 | 28,730 | 29,127 | 29,321
`| "2.`1987` | 114,514 | 130,019 | 133,886 | 135,158 | 135,572 | 135,679
`| "3.`1988` | X X X | 108,730 | 125,144 | 127,743 | 128,686 | 128,952
`| "4.`1989` | X X X | X X X | 108,679 | 124,875 | 127,371 | 128,201
`| "5.`1990` | X X X | X X X | X X X | 104,497 | 117,879 | 119,928
`| "6.`1991` | X X X | X X X | X X X | X X X | 97,069 | 108,396
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 83,442
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 29,452 | 29,516 | 29,577 | 29,607 |
| 135,733 | 135,757 | 135,771 | 135,774 |
| 129,038 | 129,100 | 129,116 | 129,126 |
| 128,461 | 128,555 | 128,599 | 128,615 |
| 120,632 | 120,803 | 120,893 | 120,928 |
| 110,428 | 111,063 | 111,272 | 111,367 |
| 92,196 | 93,572 | 94,097 | 94,234 |
| 72,252 | 78,990 | 79,981 | 80,357 |
| X X X | 68,826 | 74,657 | 75,523 |
| X X X | X X X | 66,478 | 71,984 |
| X X X | X X X | X X X | 62,698 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 5C - COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL
SECTION 1
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS CLOSED WITH LOSS PAYMENT DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 17,658 | 22,126 | 24,356 | 25,448 | 25,895 | 26,100
`| "2.`1987` | 35,760 | 47,498 | 50,102 | 51,222 | 51,746 | 51,920
`| "3.`1988` | X X X | 32,367 | 43,509 | 45,796 | 46,733 | 47,043
`| "4.`1989` | X X X | X X X | 29,515 | 40,455 | 42,482 | 43,244
`| "5.`1990` | X X X | X X X | X X X | 27,836 | 37,025 | 38,475
`| "6.`1991` | X X X | X X X | X X X | X X X | 22,679 | 29,365
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 18,103
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 26,217 | 26,260 | 26,288 | 26,302 |
| 52,025 | 52,075 | 52,093 | 52,099 |
| 47,226 | 47,314 | 47,352 | 47,377 |
| 43,611 | 43,835 | 43,925 | 43,971 |
| 39,194 | 39,602 | 39,779 | 39,858 |
| 30,874 | 31,596 | 31,964 | 32,125 |
| 24,643 | 26,140 | 26,864 | 27,161 |
| 15,269 | 20,660 | 21,821 | 22,283 |
| X X X | 14,664 | 19,475 | 20,510 |
| X X X | X X X | 12,302 | 16,585 |
| X X X | X X X | X X X | 13,027 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | NUMBER OF CLAIMS OUTSTANDING DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 7,888 | 4,213 | 2,154 | 1,012 | 505 | 289
`| "2.`1987` | 10,261 | 3,375 | 1,800 | 921 | 412 | 231
`| "3.`1988` | X X X | 9,402 | 3,217 | 1,536 | 787 | 453
`| "4.`1989` | X X X | X X X | 9,352 | 2,848 | 1,498 | 859
`| "5.`1990` | X X X | X X X | X X X | 8,573 | 2,638 | 1,579
`| "6.`1991` | X X X | X X X | X X X | X X X | 7,227 | 2,725
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 7,938
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 157 | 95 | 66 | 55 |
| 119 | 65 | 44 | 24 |
| 244 | 133 | 83 | 56 |
| 464 | 217 | 98 | 43 |
| 854 | 425 | 212 | 122 |
| 1,466 | 777 | 366 | 168 |
| 2,750 | 1,440 | 726 | 366 |
| 6,367 | 1,917 | 980 | 528 |
| X X X | 5,781 | 1,876 | 1,031 |
| X X X | X X X | 5,101 | 1,522 |
| X X X | X X X | X X X | 4,976 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 3
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS REPORTED DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 14,205 | 17,053 | 18,513 | 18,961 | 19,152 | 19,266
`| "2.`1987` | 60,005 | 70,607 | 72,732 | 73,456 | 73,700 | 73,787
`| "3.`1988` | X X X | 54,430 | 64,425 | 65,982 | 66,582 | 66,736
`| "4.`1989` | X X X | X X X | 50,018 | 59,320 | 60,790 | 61,246
`| "5.`1990` | X X X | X X X | X X X | 47,449 | 54,839 | 56,035
`| "6.`1991` | X X X | X X X | X X X | X X X | 39,977 | 45,540
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 34,817
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 19,318 | 19,353 | 19,372 | 19,394 |
| 73,838 | 73,858 | 73,868 | 73,871 |
| 66,816 | 66,850 | 66,862 | 66,873 |
| 61,399 | 61,475 | 61,505 | 61,520 |
| 56,413 | 56,559 | 56,600 | 56,624 |
| 46,490 | 46,841 | 46,971 | 47,008 |
| 39,749 | 40,584 | 40,917 | 41,017 |
| 29,401 | 33,136 | 33,891 | 34,165 |
| X X X | 27,685 | 30,973 | 31,635 |
| X X X | X X X | 23,582 | 26,527 |
| X X X | X X X | X X X | 24,618 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 5D - WORKERS' COMPENSATION
SECTION 1
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS CLOSED WITH LOSS PAYMENT DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 21,135 | 29,074 | 34,591 | 38,052 | 40,539 | 42,206
`| "2.`1987` | 18,908 | 31,571 | 35,369 | 37,234 | 38,289 | 38,827
`| "3.`1988` | X X X | 20,028 | 34,235 | 38,380 | 40,362 | 41,270
`| "4.`1989` | X X X | X X X | 19,741 | 35,897 | 40,478 | 42,306
`| "5.`1990` | X X X | X X X | X X X | 19,250 | 34,080 | 37,771
`| "6.`1991` | X X X | X X X | X X X | X X X | 17,031 | 29,008
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 11,381
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 43,725 | 45,152 | 46,240 | 47,161 |
| 39,212 | 39,477 | 39,654 | 39,786 |
| 41,823 | 42,246 | 42,521 | 42,694 |
| 43,317 | 44,010 | 44,405 | 44,652 |
| 39,686 | 40,730 | 41,280 | 41,632 |
| 32,840 | 34,550 | 35,371 | 35,907 |
| 22,489 | 25,531 | 26,776 | 27,545 |
| 8,151 | 15,643 | 17,503 | 18,483 |
| X X X | 7,104 | 12,524 | 14,216 |
| X X X | X X X | 5,260 | 10,103 |
| X X X | X X X | X X X | 6,090 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | NUMBER OF CLAIMS OUTSTANDING DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 18,602 | 12,812 | 10,139 | 7,861 | 6,492 | 5,688
`| "2.`1987` | 13,008 | 5,734 | 3,473 | 2,094 | 1,321 | 961
`| "3.`1988` | X X X | 14,481 | 6,706 | 3,546 | 2,055 | 1,441
`| "4.`1989` | X X X | X X X | 17,171 | 6,963 | 3,593 | 2,299
`| "5.`1990` | X X X | X X X | X X X | 15,274 | 6,262 | 3,677
`| "6.`1991` | X X X | X X X | X X X | X X X | 13,786 | 6,298
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 13,165
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 4,830 | 3,997 | 3,379 | 2,897 |
| 688 | 499 | 367 | 287 |
| 1,035 | 697 | 494 | 372 |
| 1,504 | 944 | 645 | 480 |
| 2,173 | 1,295 | 842 | 612 |
| 3,258 | 1,799 | 1,140 | 757 |
| 4,880 | 2,444 | 1,409 | 859 |
| 8,770 | 3,016 | 1,533 | 829 |
| X X X | 6,318 | 2,333 | 1,192 |
| X X X | X X X | 5,366 | 2,104 |
| X X X | X X X | X X X | 5,484 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 3
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS REPORTED DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 9,436 | 12,645 | 16,552 | 18,335 | 19,956 | 21,162
`| "2.`1987` | 33,562 | 40,062 | 42,174 | 42,911 | 43,348 | 43,639
`| "3.`1988` | X X X | 36,462 | 44,202 | 45,575 | 46,342 | 46,771
`| "4.`1989` | X X X | X X X | 39,142 | 46,631 | 48,338 | 49,103
`| "5.`1990` | X X X | X X X | X X X | 36,715 | 43,982 | 45,523
`| "6.`1991` | X X X | X X X | X X X | X X X | 33,106 | 39,069
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 26,820
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 22,177 | 23,003 | 23,669 | 24,310 |
| 43,814 | 43,931 | 44,004 | 44,078 |
| 47,023 | 47,184 | 47,308 | 47,393 |
| 49,486 | 49,722 | 49,878 | 50,003 |
| 46,185 | 46,529 | 46,723 | 46,923 |
| 40,361 | 40,842 | 41,113 | 41,398 |
| 31,289 | 32,214 | 32,614 | 32,989 |
| 18,601 | 21,352 | 21,933 | 22,408 |
| X X X | 14,939 | 17,085 | 17,896 |
| X X X | X X X | 11,579 | 13,773 |
| X X X | X X X | X X X | 12,680 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 5E - COMMERCIAL MULTIPLE PERIL
SECTION 1
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS CLOSED WITH LOSS PAYMENT DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 7,514 | 9,517 | 10,878 | 11,642 | 12,038 | 12,318
`| "2.`1987` | 14,503 | 19,897 | 20,712 | 21,195 | 21,466 | 21,597
`| "3.`1988` | X X X | 24,852 | 34,935 | 36,453 | 37,211 | 37,607
`| "4.`1989` | X X X | X X X | 34,270 | 47,800 | 49,653 | 50,371
`| "5.`1990` | X X X | X X X | X X X | 34,044 | 45,819 | 47,251
`| "6.`1991` | X X X | X X X | X X X | X X X | 32,875 | 42,311
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 27,451
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 12,441 | 12,526 | 12,573 | 12,611 |
| 21,668 | 21,700 | 21,730 | 21,743 |
| 37,865 | 38,016 | 38,093 | 38,134 |
| 50,892 | 51,221 | 51,370 | 51,462 |
| 48,208 | 48,754 | 49,087 | 49,264 |
| 43,954 | 44,836 | 45,338 | 45,577 |
| 38,296 | 39,907 | 40,728 | 41,173 |
| 30,308 | 40,589 | 42,270 | 43,066 |
| X X X | 35,683 | 46,008 | 47,674 |
| X X X | X X X | 33,632 | 43,872 |
| X X X | X X X | X X X | 40,222 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | NUMBER OF CLAIMS OUTSTANDING DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 6,105 | 3,862 | 2,470 | 1,664 | 1,192 | 703
`| "2.`1987` | 4,466 | 1,699 | 1,165 | 741 | 403 | 272
`| "3.`1988` | X X X | 8,054 | 2,957 | 1,866 | 1,232 | 785
`| "4.`1989` | X X X | X X X | 10,959 | 3,376 | 2,099 | 1,532
`| "5.`1990` | X X X | X X X | X X X | 10,572 | 3,509 | 2,702
`| "6.`1991` | X X X | X X X | X X X | X X X | 10,419 | 3,980
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 12,552
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 468 | 337 | 261 | 214 |
| 180 | 119 | 68 | 52 |
| 441 | 286 | 206 | 153 |
| 912 | 541 | 310 | 203 |
| 1,699 | 1,047 | 607 | 382 |
| 2,486 | 1,517 | 843 | 538 |
| 3,802 | 2,334 | 1,399 | 856 |
| 12,593 | 3,678 | 2,211 | 1,397 |
| X X X | 13,230 | 3,997 | 2,434 |
| X X X | X X X | 12,852 | 3,902 |
| X X X | X X X | X X X | 12,898 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 3
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS REPORTED DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 8,946 | 10,994 | 12,185 | 12,817 | 13,113 | 13,268
`| "2.`1987` | 26,158 | 32,067 | 33,088 | 33,511 | 33,664 | 33,768
`| "3.`1988` | X X X | 45,414 | 56,387 | 58,069 | 58,815 | 59,326
`| "4.`1989` | X X X | X X X | 62,452 | 76,277 | 78,278 | 79,107
`| "5.`1990` | X X X | X X X | X X X | 63,346 | 75,388 | 77,406
`| "6.`1991` | X X X | X X X | X X X | X X X | 62,288 | 71,972
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 56,596
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 13,389 | 13,499 | 13,556 | 13,583 |
| 33,818 | 33,836 | 33,851 | 33,865 |
| 59,491 | 59,637 | 59,714 | 59,755 |
| 79,469 | 79,679 | 79,771 | 79,855 |
| 78,287 | 78,656 | 78,804 | 78,917 |
| 73,865 | 74,635 | 74,931 | 75,102 |
| 66,849 | 68,575 | 69,184 | 69,451 |
| 62,907 | 72,191 | 73,836 | 74,518 |
| X X X | 72,572 | 81,285 | 82,950 |
| X X X | X X X | 68,699 | 77,843 |
| X X X | X X X | X X X | 78,657 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 5F - MEDICAL MALPRACTICE - OCCURRENCE
SECTION 1A
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS CLOSED WITH LOSS PAYMENT DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 163 | 296 | 411 | 490 | 518 | 546
`| "2.`1987` | 1 | 1 | 1 | 2 | 2 | 2
`| "3.`1988` | X X X | 0 | 0 | 0 | 2 | 2
`| "4.`1989` | X X X | X X X | 1 | 1 | 2 | 2
`| "5.`1990` | X X X | X X X | X X X | 0 | 0 | 0
`| "6.`1991` | X X X | X X X | X X X | X X X | 0 | 0
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 0
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 565 | 576 | 581 | 590 |
| 2 | 2 | 2 | 2 |
| 2 | 2 | 2 | 2 |
| 2 | 2 | 2 | 2 |
| 1 | 1 | 1 | 1 |
| 1 | 1 | 1 | 1 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| X X X | 0 | 0 | 0 |
| X X X | X X X | 0 | 0 |
| X X X | X X X | X X X | 0 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2A
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | NUMBER OF CLAIMS OUTSTANDING DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 538 | 352 | 231 | 122 | 88 | 68
`| "2.`1987` | 0 | 2 | 1 | 0 | 0 | 0
`| "3.`1988` | X X X | 0 | 1 | 2 | 0 | 0
`| "4.`1989` | X X X | X X X | 0 | 1 | 0 | 0
`| "5.`1990` | X X X | X X X | X X X | 1 | 1 | 1
`| "6.`1991` | X X X | X X X | X X X | X X X | 0 | 0
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 0
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 67 | 92 | 90 | 79 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| X X X | 0 | 0 | 0 |
| X X X | X X X | 0 | 0 |
| X X X | X X X | X X X | 0 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 3A
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS REPORTED DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 186 | 293 | 400 | 441 | 468 | 501
`| "2.`1987` | 3 | 5 | 5 | 5 | 5 | 5
`| "3.`1988` | X X X | 0 | 1 | 4 | 4 | 4
`| "4.`1989` | X X X | X X X | 2 | 4 | 4 | 4
`| "5.`1990` | X X X | X X X | X X X | 1 | 3 | 3
`| "6.`1991` | X X X | X X X | X X X | X X X | 0 | 0
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 0
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 551 | 496 | 611 | 621 |
| 5 | 5 | 5 | 5 |
| 4 | 4 | 4 | 4 |
| 4 | 4 | 4 | 4 |
| 4 | 4 | 4 | 4 |
| 1 | 1 | 1 | 1 |
| 0 | 0 | 0 | 0 |
| 1 | 1 | 1 | 1 |
| X X X | 0 | 0 | 0 |
| X X X | X X X | 0 | 0 |
| X X X | X X X | X X X | 0 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 5F - MEDICAL MALPRACTICE - CLAIMS-MADE
SECTION 1B
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS CLOSED WITH LOSS PAYMENT DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 4 | 9 | 11 | 11 | 11 | 11
`| "2.`1987` | 0 | 0 | 0 | 0 | 0 | 0
`| "3.`1988` | X X X | 0 | 0 | 0 | 0 | 0
`| "4.`1989` | X X X | X X X | 0 | 0 | 0 | 0
`| "5.`1990` | X X X | X X X | X X X | 0 | 0 | 0
`| "6.`1991` | X X X | X X X | X X X | X X X | 0 | 0
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 0
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 11 | 11 | 11 | 11 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| X X X | 0 | 0 | 0 |
| X X X | X X X | 0 | 0 |
| X X X | X X X | X X X | 0 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2B
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | NUMBER OF CLAIMS OUTSTANDING DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 8 | 2 | 0 | 0 | 0 | 0
`| "2.`1987` | 0 | 0 | 0 | 0 | 0 | 0
`| "3.`1988` | X X X | 0 | 0 | 0 | 0 | 0
`| "4.`1989` | X X X | X X X | 1 | 0 | 0 | 0
`| "5.`1990` | X X X | X X X | X X X | 0 | 0 | 0
`| "6.`1991` | X X X | X X X | X X X | X X X | 0 | 0
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 0
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| X X X | 0 | 0 | 0 |
| X X X | X X X | 0 | 0 |
| X X X | X X X | X X X | 0 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 3B
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS REPORTED DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0
`| "2.`1987` | 0 | 0 | 0 | 0 | 0 | 0
`| "3.`1988` | X X X | 0 | 0 | 0 | 0 | 0
`| "4.`1989` | X X X | X X X | 2 | 2 | 2 | 2
`| "5.`1990` | X X X | X X X | X X X | 0 | 0 | 0
`| "6.`1991` | X X X | X X X | X X X | X X X | 0 | 0
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 0
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 2 | 2 | 2 | 2 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| X X X | 0 | 0 | 0 |
| X X X | X X X | 0 | 0 |
| X X X | X X X | X X X | 0 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 5H - OTHER LIABILITY - OCCURRENCE
SECTION 1A
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS CLOSED WITH LOSS PAYMENT DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 8,733 | 12,158 | 14,348 | 15,791 | 16,603 | 16,979
`| "2.`1987` | 9,884 | 14,181 | 15,214 | 15,906 | 16,284 | 16,508
`| "3.`1988` | X X X | 7,925 | 11,423 | 12,045 | 12,458 | 12,717
`| "4.`1989` | X X X | X X X | 5,142 | 7,265 | 7,715 | 7,978
`| "5.`1990` | X X X | X X X | X X X | 5,273 | 7,221 | 7,642
`| "6.`1991` | X X X | X X X | X X X | X X X | 3,951 | 5,101
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 1,928
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 17,275 | 17,465 | 17,643 | 17,808 |
| 16,642 | 16,709 | 16,741 | 16,761 |
| 12,866 | 12,938 | 12,978 | 13,000 |
| 8,182 | 8,309 | 8,382 | 8,419 |
| 7,890 | 8,071 | 8,159 | 8,234 |
| 5,450 | 5,643 | 5,769 | 5,857 |
| 2,791 | 3,017 | 3,144 | 3,223 |
| 1,399 | 2,024 | 2,179 | 2,306 |
| X X X | 1,261 | 1,788 | 1,927 |
| X X X | X X X | 1,089 | 1,645 |
| X X X | X X X | X X X | 1,272 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2A
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | NUMBER OF CLAIMS OUTSTANDING DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 10,750 | 5,980 | 4,082 | 2,462 | 1,564 | 1,211
`| "2.`1987` | 3,895 | 2,178 | 1,651 | 1,028 | 651 | 388
`| "3.`1988` | X X X | 2,552 | 1,457 | 1,063 | 722 | 435
`| "4.`1989` | X X X | X X X | 2,079 | 1,014 | 838 | 623
`| "5.`1990` | X X X | X X X | X X X | 2,131 | 992 | 839
`| "6.`1991` | X X X | X X X | X X X | X X X | 1,582 | 887
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 1,225
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 1,082 | 984 | 1,100 | 895 |
| 232 | 154 | 131 | 120 |
| 264 | 167 | 125 | 91 |
| 379 | 237 | 151 | 74 |
| 569 | 364 | 242 | 153 |
| 659 | 457 | 294 | 182 |
| 612 | 423 | 296 | 189 |
| 794 | 412 | 336 | 252 |
| X X X | 815 | 383 | 267 |
| X X X | X X X | 915 | 510 |
| X X X | X X X | X X X | 1,125 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 3A
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS REPORTED DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 11,389 | 15,153 | 17,474 | 18,613 | 19,324 | 19,760
`| "2.`1987` | 19,492 | 25,685 | 27,205 | 27,854 | 28,152 | 28,313
`| "3.`1988` | X X X | 15,108 | 19,529 | 20,463 | 20,904 | 21,074
`| "4.`1989` | X X X | X X X | 10,474 | 13,278 | 14,045 | 14,394
`| "5.`1990` | X X X | X X X | X X X | 11,883 | 14,346 | 15,023
`| "6.`1991` | X X X | X X X | X X X | X X X | 8,597 | 10,179
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 4,932
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 20,289 | 20,672 | 21,315 | 21,753 |
| 28,404 | 28,452 | 28,500 | 28,554 |
| 21,164 | 21,221 | 21,266 | 21,307 |
| 14,535 | 14,609 | 14,648 | 14,673 |
| 15,288 | 15,412 | 15,499 | 15,554 |
| 10,692 | 10,896 | 11,010 | 11,070 |
| 6,081 | 6,378 | 6,531 | 6,604 |
| 3,428 | 4,380 | 4,681 | 4,815 |
| X X X | 3,515 | 4,262 | 4,457 |
| X X X | X X X | 3,504 | 4,491 |
| X X X | X X X | X X X | 4,631 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 5H - OTHER LIABILITY - CLAIMS-MADE
SECTION 1B
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS CLOSED WITH LOSS PAYMENT DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 0 | 4 | 5 | 6 | 6 | 6
`| "2.`1987` | 0 | 0 | 1 | 1 | 1 | 1
`| "3.`1988` | X X X | 57 | 73 | 75 | 75 | 76
`| "4.`1989` | X X X | X X X | 106 | 123 | 129 | 130
`| "5.`1990` | X X X | X X X | X X X | 72 | 81 | 82
`| "6.`1991` | X X X | X X X | X X X | X X X | 60 | 71
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 50
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 6 | 7 | 7 | 7 |
| 1 | 1 | 1 | 1 |
| 76 | 76 | 76 | 78 |
| 131 | 132 | 132 | 132 |
| 84 | 85 | 87 | 87 |
| 73 | 76 | 77 | 80 |
| 63 | 70 | 70 | 72 |
| 29 | 36 | 39 | 39 |
| X X X | 14 | 22 | 26 |
| X X X | X X X | 65 | 106 |
| X X X | X X X | X X X | 384 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2B
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | NUMBER OF CLAIMS OUTSTANDING DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 12 | 8 | 7 | 6 | 6 | 6
`| "2.`1987` | 5 | 4 | 3 | 2 | 1 | 1
`| "3.`1988` | X X X | 42 | 12 | 8 | 6 | 4
`| "4.`1989` | X X X | X X X | 42 | 13 | 7 | 6
`| "5.`1990` | X X X | X X X | X X X | 33 | 9 | 8
`| "6.`1991` | X X X | X X X | X X X | X X X | 42 | 15
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 45
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 6 | 5 | 5 | 5 |
| 1 | 1 | 1 | 1 |
| 4 | 4 | 4 | 2 |
| 5 | 4 | 2 | 2 |
| 6 | 5 | 2 | 2 |
| 8 | 4 | 3 | 0 |
| 18 | 8 | 7 | 4 |
| 47 | 29 | 24 | 20 |
| X X X | 36 | 15 | 9 |
| X X X | X X X | 127 | 21 |
| X X X | X X X | X X X | 165 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 3B
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS REPORTED DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0
`| "2.`1987` | 6 | 6 | 6 | 6 | 6 | 6
`| "3.`1988` | X X X | 125 | 125 | 125 | 125 | 125
`| "4.`1989` | X X X | X X X | 201 | 201 | 201 | 201
`| "5.`1990` | X X X | X X X | X X X | 163 | 163 | 163
`| "6.`1991` | X X X | X X X | X X X | X X X | 165 | 165
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 151
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 0 | 0 | 0 | 0 |
| 6 | 6 | 6 | 6 |
| 125 | 125 | 125 | 125 |
| 201 | 201 | 201 | 201 |
| 163 | 163 | 163 | 163 |
| 165 | 165 | 165 | 165 |
| 151 | 151 | 151 | 151 |
| 110 | 110 | 110 | 110 |
| X X X | 77 | 77 | 77 |
| X X X | X X X | 306 | 306 |
| X X X | X X X | X X X | 1,167 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 5R - PRODUCTS LIABILITY - OCCURRENCE
SECTION 1A
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS CLOSED WITH LOSS PAYMENT DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 425 | 730 | 1,130 | 1,458 | 1,586 | 1,664
`| "2.`1987` | 153 | 262 | 326 | 410 | 470 | 498
`| "3.`1988` | X X X | 74 | 217 | 277 | 363 | 395
`| "4.`1989` | X X X | X X X | 230 | 352 | 405 | 438
`| "5.`1990` | X X X | X X X | X X X | 281 | 398 | 413
`| "6.`1991` | X X X | X X X | X X X | X X X | 171 | 224
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 77
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 1,736 | 1,810 | 1,850 | 1,923 |
| 522 | 542 | 563 | 578 |
| 416 | 422 | 429 | 439 |
| 467 | 482 | 489 | 492 |
| 443 | 459 | 469 | 477 |
| 257 | 276 | 293 | 303 |
| 112 | 141 | 167 | 172 |
| 82 | 119 | 125 | 131 |
| X X X | 25 | 44 | 46 |
| X X X | X X X | 24 | 32 |
| X X X | X X X | X X X | 17 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2A
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | NUMBER OF CLAIMS OUTSTANDING DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 2,305 | 2,225 | 2,093 | 1,068 | 428 | 387
`| "2.`1987` | 166 | 265 | 264 | 163 | 129 | 103
`| "3.`1988` | X X X | 162 | 142 | 162 | 97 | 74
`| "4.`1989` | X X X | X X X | 154 | 100 | 87 | 54
`| "5.`1990` | X X X | X X X | X X X | 132 | 67 | 68
`| "6.`1991` | X X X | X X X | X X X | X X X | 70 | 68
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 78
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 395 | 588 | 596 | 564 |
| 97 | 105 | 63 | 49 |
| 61 | 58 | 35 | 22 |
| 43 | 27 | 17 | 11 |
| 54 | 43 | 27 | 15 |
| 80 | 67 | 43 | 29 |
| 62 | 56 | 28 | 24 |
| 45 | 19 | 17 | 14 |
| X X X | 31 | 9 | 16 |
| X X X | X X X | 15 | 17 |
| X X X | X X X | X X X | 37 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 3A
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS REPORTED DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 2,227 | 3,708 | 4,880 | 5,189 | 5,404 | 5,615
`| "2.`1987` | 439 | 760 | 947 | 1,018 | 1,091 | 1,140
`| "3.`1988` | X X X | 298 | 598 | 746 | 804 | 838
`| "4.`1989` | X X X | X X X | 576 | 811 | 892 | 925
`| "5.`1990` | X X X | X X X | X X X | 672 | 844 | 890
`| "6.`1991` | X X X | X X X | X X X | X X X | 408 | 509
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 304
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 5,823 | 6,196 | 6,326 | 6,415 |
| 1,202 | 1,257 | 1,276 | 1,291 |
| 880 | 903 | 913 | 922 |
| 958 | 974 | 983 | 987 |
| 930 | 949 | 955 | 961 |
| 583 | 623 | 642 | 650 |
| 401 | 457 | 478 | 497 |
| 186 | 232 | 242 | 252 |
| X X X | 88 | 111 | 127 |
| X X X | X X X | 63 | 87 |
| X X X | X X X | X X X | 106 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 5R - PRODUCTS LIABILITY - CLAIMS-MADE
SECTION 1B
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS CLOSED WITH LOSS PAYMENT DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0
`| "2.`1987` | 0 | 0 | 1 | 1 | 1 | 1
`| "3.`1988` | X X X | 3 | 3 | 4 | 4 | 5
`| "4.`1989` | X X X | X X X | 0 | 0 | 1 | 1
`| "5.`1990` | X X X | X X X | X X X | 2 | 3 | 4
`| "6.`1991` | X X X | X X X | X X X | X X X | 1 | 3
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 0
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 0 | 0 | 0 | 0 |
| 1 | 1 | 1 | 1 |
| 5 | 5 | 5 | 5 |
| 1 | 1 | 2 | 2 |
| 6 | 6 | 6 | 6 |
| 5 | 7 | 7 | 7 |
| 1 | 1 | 1 | 1 |
| 0 | 11 | 17 | 21 |
| X X X | 7 | 10 | 13 |
| X X X | X X X | 1 | 4 |
| X X X | X X X | X X X | 10 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2B
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | NUMBER OF CLAIMS OUTSTANDING DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0
`| "2.`1987` | 1 | 1 | 0 | 0 | 0 | 0
`| "3.`1988` | X X X | 6 | 2 | 1 | 1 | 0
`| "4.`1989` | X X X | X X X | 3 | 3 | 2 | 2
`| "5.`1990` | X X X | X X X | X X X | 7 | 5 | 4
`| "6.`1991` | X X X | X X X | X X X | X X X | 9 | 5
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 4
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 2 | 2 | 1 | 0 |
| 0 | 0 | 0 | 0 |
| 2 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 81 | 39 | 30 | 23 |
| X X X | 40 | 21 | 16 |
| X X X | X X X | 9 | 4 |
| X X X | X X X | X X X | 4 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 3B
<S> <C> <C> <C> <C> <C> <C>
!--------------------#---------------------------------------------------------------------------------------------------
| | CUMULATIVE NUMBER OF CLAIMS REPORTED DIRECT AND ASSUMED AT YEAR END
| 1 |---------------#----------------#----------------#----------------#----------------#---------------
| Years | | | | | |
| in Which | 2 | 3 | 4 | 5 | 6 | 7
| Premiums Were | | | | | |
| Earned and | | | | | |
| Losses Were | | | | | |
| Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|--------------------|---------------|----------------|----------------|----------------|----------------|---------------
`| "1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0
`| "2.`1987` | 1 | 1 | 1 | 1 | 1 | 1
`| "3.`1988` | X X X | 9 | 9 | 9 | 9 | 9
`| "4.`1989` | X X X | X X X | 4 | 4 | 4 | 4
`| "5.`1990` | X X X | X X X | X X X | 9 | 9 | 9
`| "6.`1991` | X X X | X X X | X X X | X X X | 14 | 14
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 6
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X
--------------------->--------------->---------------->---------------->---------------->---------------->---------------
<C> <C> <C> <C>
- - ---------------------------------------------------------------------#
|
- - -#----------------#----------------#----------------#----------------|
| | | | |
| 8 | 9 | 10 | 11 |
| | | | |
| | | | |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
- - -|----------------|----------------|----------------|----------------|
| 0 | 0 | 0 | 0 |
| 1 | 1 | 1 | 1 |
| 9 | 9 | 9 | 9 |
| 4 | 4 | 4 | 4 |
| 9 | 9 | 9 | 9 |
| 14 | 14 | 14 | 14 |
| 6 | 6 | 6 | 6 |
| 83 | 83 | 83 | 83 |
| X X X | 63 | 63 | 63 |
| X X X | X X X | 12 | 12 |
| X X X | X X X | X X X | 38 |
- - ->---------------->---------------->---------------->---------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 6C - COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL
SECTION 1
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| 1 | CUMULATIVE PREMIUMS EARNED DIRECT AND ASSUMED AT YEAR END ($000 OMITTED)
| Years in |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| Which Premiums | | | | | | |
| Were Earned | 2 | 3 | 4 | 5 | 6 | 7 | 8
| and Losses | | | | | | |
| Were Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`| "1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`| "2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`| "3.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`| "4.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`| "5.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`| "6.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 226,730
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`12.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`13.`Earned`Premiums"" |"""""""|""""""|"""""""|""""""|"""""""|""""""|"""""""|""""""|"""""""|""""""|"""""""|
`|""`(Sch`P,`Part`1)` | 504,537 | 461,137 | 424,658 | 419,676 | 384,380 | 319,764 | 259,903
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| |
#--------------#--------------#--------------| 12 |
| | | | |
| 9 | 10 | 11 | Current Year |
| | | | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | (4,004)|
| 0 | 0 | 0 | 47 |
| 0 | 0 | 0 | (13)|
| 0 | 0 | 0 | (147)|
| 0 | 0 | 0 | (332)|
| 0 | 0 | 0 | (84)|
| 0 | 0 | 0 | 158 |
| 264,003 | 264,368 | 264,453 | 84 |
| 203,931 | 230,445 | 232,438 | 1,993 |
| X X X | 199,287 | 226,961 | 27,675 |
| X X X | X X X | 206,533 | 206,533 |
>-------------->-------------->--------------|--------------|
| 231,910 |
#--------------#--------------#--------------|--------------|
| 232,560 | 210,937 | 231,910 | X X X |
>-------------->-------------->-------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| | CUMULATIVE PREMIUMS EARNED CEDED AT YEAR END ($000 OMITTED)
| 1 |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| | 2 | 3 | 4 | 5 | 6 | 7 | 8
| | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`| "1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`| "2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`| "3.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`| "4.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`| "5.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`| "6.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 28,432
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`12.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`13.`Earned`Premiums" "|"""""""|""""""|"""""""|""""""|""""""|"""""""|"""""""|""""""|"""""""|""""""|""""""" |
`|""`(Sch`P,`Part`1)` | 27,137| 39,793| 43,290 | 42,802| 39,874| 39,044 | 30,643
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| 12 |
#--------------#--------------#--------------| Current Year |
| 9 | 10 | 11 | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 2 |
| 30,643 | 30,562 | 30,574 | 12 |
| 26,988 | 27,312 | 27,323 | 10 |
| X X X | 28,837 | 35,324 | 6,487 |
| X X X | X X X | 28,721 | 28,721 |
>-------------->-------------->--------------|--------------|
| 35,232 |
#--------------#--------------#--------------|--------------|
| 29,388 | 25,886 | 35,232 | X X X |
- - --------------->-------------->-------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 6D - WORKERS' COMPENSATION
SECTION 1
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| 1 | CUMULATIVE PREMIUMS EARNED DIRECT AND ASSUMED AT YEAR END ($000 OMITTED)
| Years in |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| Which Premiums | | | | | | |
| Were Earned | 2 | 3 | 4 | 5 | 6 | 7 | 8
| and Losses | | | | | | |
| Were Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`| "1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`| "2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`| "3.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`| "4.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`| "5.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`| "6.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 383,393
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`12.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`13.`Earned`Premiums"" |"""""""|""""""|"""""""|""""""|"""""""|""""""|"""""""|""""""|"""""""|""""""|"""""""|
`|""`(Sch`P,`Part`1)` | 622,801 | 747,889 | 791,969 | 883,078 | 754,958 | 625,431 | 457,088
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| |
#--------------#--------------#--------------| 12 |
| | | | |
| 9 | 10 | 11 | Current Year |
| | | | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | (52)|
| 0 | 0 | 0 | (1,725)|
| 0 | 0 | 0 | (4,465)|
| 0 | 0 | 0 | (988)|
| 0 | 0 | 0 | (44)|
| 0 | 0 | 0 | (1,096)|
| 0 | 0 | 0 | (808)|
| 450,093 | 449,328 | 447,706 | (1,622)|
| 305,089 | 337,280 | 337,086 | (194)|
| X X X | 287,567 | 317,318 | 29,751 |
| X X X | X X X | 272,902 | 272,902 |
>-------------->-------------->--------------|--------------|
| 291,659 |
#--------------#--------------#--------------|--------------|
| 351,303 | 306,578 | 291,659 | X X X |
>-------------->-------------->-------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| | CUMULATIVE PREMIUMS EARNED CEDED AT YEAR END ($000 OMITTED)
| 1 |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| | 2 | 3 | 4 | 5 | 6 | 7 | 8
| | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`| "1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`| "2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`| "3.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`| "4.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`| "5.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`| "6.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`| "7.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0
`| "8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 247,003
`| "9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`12.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`13.`Earned`Premiums"" |"""""""|""""""|"""""""|""""""|"""""""|""""""|"""""""|""""""|"""""""|""""""|"""""""|
`|""`(Sch`P,`Part`1)` | 81,301 | 111,269 | 158,717 | 188,951 | 251,311 | 305,456 | 306,269
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| 12 |
#--------------#--------------#--------------| Current Year |
| 9 | 10 | 11 | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | (8)|
| 0 | 0 | 0 | 2 |
| 0 | 0 | 0 | 226 |
| 279,294 | 278,587 | 278,112 | (475)|
| 187,596 | 200,669 | 199,708 | (962)|
| X X X | 125,082 | 134,565 | 9,483 |
| X X X | X X X | 101,413 | 101,413 |
>-------------->-------------->--------------|--------------|
| 109,679 |
#--------------#--------------#--------------|--------------|
| 224,832 | 135,033 | 109,679 | X X X |
>-------------->-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 6E - COMMERCIAL MULTIPLE PERIL
SECTION 1
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| 1 | CUMULATIVE PREMIUMS EARNED DIRECT AND ASSUMED AT YEAR END ($000 OMITTED)
| Years in |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| Which Premiums | | | | | | |
| Were Earned | 2 | 3 | 4 | 5 | 6 | 7 | 8
| and Losses | | | | | | |
| Were Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`|``1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``3.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`|``4.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|``5.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`|``6.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`|``7.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|``8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 601,227
`|``9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`12.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`13.`Earned`Premiums````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````
`|`````(Sch`P,`Part`1)` | 387,310 | 650,932 | 738,672 | 731,950 | 674,236 | 608,782 | 601,390
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| |
#--------------#--------------#--------------| 12 |
| | | | |
| 9 | 10 | 11 | Current Year |
| | | | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 2 |
| 0 | 0 | 0 | (7)|
| 0 | 0 | 0 | (70)|
| 0 | 0 | 0 | (145)|
| 0 | 0 | 0 | (22)|
| 0 | 0 | 0 | (8)|
| 616,773 | 615,632 | 615,614 | (18)|
| 620,126 | 634,647 | 634,161 | (486)|
| X X X | 646,600 | 664,697 | 18,097 |
| X X X | X X X | 702,723 | 702,723 |
>-------------->-------------->--------------|--------------|
| 720,066 |
#--------------#--------------#--------------|--------------|
|``````````````|``````````````|``````````````|``````````````|
| 636,937 | 658,826 | 720,066 | X X X |
>-------------->-------------->-------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| | CUMULATIVE PREMIUMS EARNED CEDED AT YEAR END ($000 OMITTED)
| 1 |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| | 2 | 3 | 4 | 5 | 6 | 7 | 8
| | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`|``1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``3.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`|``4.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|``5.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`|``6.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`|``7.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|``8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 2,069
`|``9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`12.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`13.`Earned`Premiums````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````
`|`````(Sch`P,`Part`1)` | 18,374 | 26,143 | 18,418 | 13,795 | 4,649 | 4,166 | 5,796
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| 12 |
#--------------#--------------#--------------| Current Year |
| 9 | 10 | 11 | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 5,552 | 5,551 | 5,551 | 0 |
| 2,674 | 5,236 | 5,234 | (2)|
| X X X | 3,737 | 4,854 | 1,117 |
| X X X | X X X | 5,936 | 5,936 |
>-------------->-------------->--------------|--------------|
| 7,051 |
#--------------#--------------#--------------|--------------|
|``````````````|``````````````|``````````````|``````````````|
| 5,964 | 6,298 | 7,051 | X X X |
>-------------->-------------->-------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 6H - OTHER LIABILITY - OCCURRENCE
SECTION 1A
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| 1 | CUMULATIVE PREMIUMS EARNED DIRECT AND ASSUMED AT YEAR END ($000 OMITTED)
| Years in |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| Which Premiums | | | | | | |
| Were Earned | 2 | 3 | 4 | 5 | 6 | 7 | 8
| and Losses | | | | | | |
| Were Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`|``1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``3.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`|``4.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|``5.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`|``6.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`|``7.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|``8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 103,932
`|``9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`12.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`13.`Earned`Premiums````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````
`|`````(Sch`P,`Part`1)` | 624,510 | 526,042 | 290,820 | 261,224 | 177,601 | 116,299 | 99,208
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| |
#--------------#--------------#--------------| 12 |
| | | | |
| 9 | 10 | 11 | Current Year |
| | | | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | 1 |
| 0 | 0 | 0 | 49 |
| 0 | 0 | 0 | 238 |
| 0 | 0 | 0 | 142 |
| 0 | 0 | 0 | (557)|
| 0 | 0 | 0 | (28)|
| 0 | 0 | 0 | (57)|
| 112,363 | 112,489 | 112,300 | (188)|
| 97,555 | 105,885 | 112,764 | 6,879 |
| X X X | 111,753 | 126,915 | 15,162 |
| X X X | X X X | 125,444 | 125,444 |
>-------------->-------------->--------------|--------------|
| 147,085 |
#--------------#--------------#--------------|--------------|
|``````````````|``````````````|``````````````|``````````````|
| 102,421 | 108,693 | 147,085 | X X X |
>-------------->-------------->-------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2A
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| | CUMULATIVE PREMIUMS EARNED CEDED AT YEAR END ($000 OMITTED)
| 1 |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| | 2 | 3 | 4 | 5 | 6 | 7 | 8
| | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`|``1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``3.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`|``4.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|``5.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`|``6.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`|``7.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|``8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 7,981
`|``9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`12.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`13.`Earned`Premiums````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````
`|`````(Sch`P,`Part`1)` | 133,070 | 132,411 | 66,258 | 55,253 | 27,429 | 28,885 | (1,216)
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| 12 |
#--------------#--------------#--------------| Current Year |
| 9 | 10 | 11 | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 2 |
| 13,699 | 13,692 | 13,696 | 4 |
| 12,234 | 16,039 | 16,183 | 144 |
| X X X | 19,866 | 32,131 | 12,265 |
| X X X | X X X | 35,655 | 35,655 |
>-------------->-------------->--------------|--------------|
| 48,070 |
#--------------#--------------#--------------|--------------|
|``````````````|``````````````|``````````````|``````````````|
| 17,926 | 21,051 | 48,070 | X X X |
>-------------->-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 6H - OTHER LIABILITY - CLAIMS-MADE
SECTION 1B
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| 1 | CUMULATIVE PREMIUMS EARNED DIRECT AND ASSUMED AT YEAR END ($000 OMITTED)
| Years in |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| Which Premiums | | | | | | |
| Were Earned | 2 | 3 | 4 | 5 | 6 | 7 | 8
| and Losses | | | | | | |
| Were Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`|``1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``3.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`|``4.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|``5.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`|``6.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`|``7.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|``8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 1,709
`|``9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`12.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`13.`Earned`Premiums````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````
`|`````(Sch`P,`Part`1)` | 68 | 1,993 | 2,406 | 2,190 | 3,137 | 2,122 | 1,550
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| |
#--------------#--------------#--------------| 12 |
| | | | |
| 9 | 10 | 11 | Current Year |
| | | | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 2,146 | 2,144 | 2,144 | 0 |
| 2,280 | 2,632 | 2,598 | (34)|
| X X X | 3,611 | 4,551 | 940 |
| X X X | X X X | 6,374 | 6,374 |
>-------------->-------------->--------------|--------------|
| 7,280 |
#--------------#--------------#--------------|--------------|
|``````````````|``````````````|``````````````|``````````````|
| 1,834 | 2,738 | 7,280 | X X X |
>-------------->-------------->-------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2B
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| | CUMULATIVE PREMIUMS EARNED CEDED AT YEAR END ($000 OMITTED)
| 1 |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| | 2 | 3 | 4 | 5 | 6 | 7 | 8
| | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`|``1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``3.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`|``4.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|``5.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`|``6.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`|``7.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|``8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 472
`|``9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`12.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`13.`Earned`Premiums````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````
`|`````(Sch`P,`Part`1)` | 0 | 0 | 0 | 286 | 42 | 270 | 517
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| 12 |
#--------------#--------------#--------------| Current Year |
| 9 | 10 | 11 | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 483 | 483 | 483 | 0 |
| 469 | 436 | 498 | 61 |
| X X X | 364 | 732 | 369 |
| X X X | X X X | 1,621 | 1,621 |
>-------------->-------------->--------------|--------------|
| 2,051 |
#--------------#--------------#--------------|--------------|
|``````````````|``````````````|``````````````|``````````````|
| 480 | 202 | 2,051 | X X X |
>-------------->-------------->-------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 6M - INTERNATIONAL
SECTION 1
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| 1 | CUMULATIVE PREMIUMS EARNED DIRECT AND ASSUMED AT YEAR END ($000 OMITTED)
| Years in |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| Which Premiums | | | | | | |
| Were Earned | 2 | 3 | 4 | 5 | 6 | 7 | 8
| and Losses | | | | | | |
| Were Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`|``1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``3.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`|``4.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|``5.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`|``6.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`|``7.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|``8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 10,941
`|``9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`12.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`13.`Earned`Premiums````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````
`|`````(Sch`P,`Part`1)` | 0 | 19,649 | 14,651 | 12,386 | 9,982 | 4,683 | 12,988
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| |
#--------------#--------------#--------------| 12 |
| | | | |
| 9 | 10 | 11 | Current Year |
| | | | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | 40 |
| 0 | 0 | 0 | 3 |
| 0 | 0 | 0 | 11 |
| 0 | 0 | 0 | 10 |
| 0 | 0 | 0 | 3 |
| 0 | 0 | 0 | 3 |
| 0 | 0 | 0 | 10 |
| 27,440 | 28,689 | 28,771 | 82 |
| 60,136 | 104,403 | 106,342 | 1,939 |
| X X X | 86,445 | 138,349 | 51,903 |
| X X X | X X X | 91,204 | 91,204 |
>-------------->-------------->--------------|--------------|
| 145,208 |
#--------------#--------------#--------------|--------------|
|``````````````|``````````````|``````````````|``````````````|
| 77,224 | 132,147 | 145,208 | X X X |
>-------------->-------------->-------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| | CUMULATIVE PREMIUMS EARNED CEDED AT YEAR END ($000 OMITTED)
| 1 |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| | 2 | 3 | 4 | 5 | 6 | 7 | 8
| | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`|``1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``3.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`|``4.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|``5.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`|``6.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`|``7.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|``8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 0
`|``9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`12.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`13.`Earned`Premiums````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````
`|`````(Sch`P,`Part`1)` | 0 | 337 | 122 | 63 | 69 | 39 | 0
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| 12 |
#--------------#--------------#--------------| Current Year |
| 9 | 10 | 11 | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| X X X | 0 | 0 | 0 |
| X X X | X X X | 0 | 0 |
>-------------->-------------->--------------|--------------|
| 0 |
#--------------#--------------#--------------|--------------|
|``````````````|``````````````|``````````````|``````````````|
| 0 | 0 | 0 | X X X |
>-------------->-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 6N - REINSURANCE A
SECTION 1
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| 1 | CUMULATIVE PREMIUMS EARNED DIRECT AND ASSUMED AT YEAR END ($000 OMITTED)
| Years in |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| Which Premiums | | | | | | |
| Were Earned | 2 | 3 | 4 | 5 | 6 | 7 | 8
| and Losses | | | | | | |
| Were Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`|``1.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`|``2.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|``3.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`|``4.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`|``5.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|``6.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 56,564
`|``7.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|``8.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|``9.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`10.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`11.`Earned`Premiums````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````
`|`````(Sch`P,`Part`1)` | 0 | 34,707 | 25,922 | 79,740 | 60,073 | 56,589 | 61,844
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| |
#--------------#--------------#--------------| 12 |
| | | | |
| 9 | 10 | 11 | Current Year |
| | | | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | (28)|
| 0 | 0 | 0 | (82)|
| 0 | 0 | 0 | (22)|
| 0 | 0 | 0 | 25 |
| 0 | 0 | 0 | 30 |
| 64,071 | 64,882 | 65,041 | 160 |
| 45,979 | 93,343 | 94,010 | 667 |
| X X X | 27,904 | 35,110 | 7,206 |
| X X X | X X X | 50,702 | 50,702 |
>-------------->-------------->--------------|--------------|
| 58,658 |
#--------------#--------------#--------------|--------------|
|``````````````|``````````````|``````````````|``````````````|
| 54,527 | 76,202 | 58,658 | X X X |
>-------------->-------------->-------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| | CUMULATIVE PREMIUMS EARNED CEDED AT YEAR END ($000 OMITTED)
| 1 |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| | 2 | 3 | 4 | 5 | 6 | 7 | 8
| | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`|``1.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`|``2.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|``3.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`|``4.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`|``5.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | (128)
`|``6.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 14,662
`|``7.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|``8.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|``9.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`10.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`11.`Earned`Premiums````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````
`|`````(Sch`P,`Part`1)` | 0 | 1,738 | 2,056 | 60,145 | 34,454 | 12,582 | 10,382
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| 12 |
#--------------#--------------#--------------| Current Year |
| 9 | 10 | 11 | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 1 |
| (140)| (146)| (145)| 4 |
| 17,076 | 17,362 | 17,426 | 64 |
| 16,101 | 35,767 | 35,870 | 102 |
| X X X | 9,895 | 13,040 | 3,145 |
| X X X | X X X | 23,961 | 23,961 |
>-------------->-------------->--------------|--------------|
| 27,277 |
#--------------#--------------#--------------|--------------|
|``````````````|``````````````|``````````````|``````````````|
| 18,639 | 29,867 | 27,277 | X X X |
>-------------->-------------->-------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 6O - REINSURANCE B
SECTION 1
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| 1 | CUMULATIVE PREMIUMS EARNED DIRECT AND ASSUMED AT YEAR END ($000 OMITTED)
| Years in |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| Which Premiums | | | | | | |
| Were Earned | 2 | 3 | 4 | 5 | 6 | 7 | 8
| and Losses | | | | | | |
| Were Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`|``1.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`|``2.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|``3.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`|``4.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`|``5.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|``6.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 277,773
`|``7.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|``8.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|``9.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`10.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`11.`Earned`Premiums````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````
`|`````(Sch`P,`Part`1)` | 0 | 155,207 | 443,293 | 321,700 | 150,161 | 193,065 | 331,591
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| |
#--------------#--------------#--------------| 12 |
| | | | |
| 9 | 10 | 11 | Current Year |
| | | | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | 350 |
| 0 | 0 | 0 | (8)|
| 0 | 0 | 0 | (28)|
| 0 | 0 | 0 | 37 |
| 0 | 0 | 0 | 266 |
| 307,462 | 311,419 | 295,355 | (16,064)|
| 199,868 | 230,327 | 226,449 | (3,877)|
| X X X | 221,762 | 223,589 | 1,826 |
| X X X | X X X | 199,962 | 199,962 |
>-------------->-------------->--------------|--------------|
| 182,464 |
#--------------#--------------#--------------|--------------|
|``````````````|``````````````|``````````````|``````````````|
| 238,226 | 256,710 | 182,464 | X X X |
>-------------->-------------->-------------->-------------->
SECTION 2
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| | CUMULATIVE PREMIUMS EARNED CEDED AT YEAR END ($000 OMITTED)
| 1 |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| | 2 | 3 | 4 | 5 | 6 | 7 | 8
| | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`|``1.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`|``2.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|``3.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`|``4.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`|``5.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | (16)
`|``6.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 325,349
`|``7.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|``8.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|``9.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`10.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`11.`Earned`Premiums````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````
`|`````(Sch`P,`Part`1)` | 0 | 139,405 | 419,913 | 308,404 | 142,532 | 175,005 | 372,114
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| 12 |
#--------------#--------------#--------------| Current Year |
| 9 | 10 | 11 | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | 359 |
| 0 | 0 | 0 | 72 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 18 |
| (16)| (16)| (16)| 185 |
| 348,256 | 351,506 | 335,188 | (16,318)|
| 67,349 | 71,523 | 55,401 | (16,122)|
| X X X | 207,867 | 198,274 | (9,594)|
| X X X | X X X | 166,873 | 166,873 |
>-------------->-------------->--------------|--------------|
| 125,473 |
#--------------#--------------#--------------|--------------|
|``````````````|``````````````|``````````````|``````````````|
| 101,075 | 216,242 | 125,473 | X X X |
>-------------->-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 6R - PRODUCTS LIABILITY - OCCURRENCE
SECTION 1A
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| 1 | CUMULATIVE PREMIUMS EARNED DIRECT AND ASSUMED AT YEAR END ($000 OMITTED)
| Years in |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| Which Premiums | | | | | | |
| Were Earned | 2 | 3 | 4 | 5 | 6 | 7 | 8
| and Losses | | | | | | |
| Were Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`|``1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``3.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`|``4.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|``5.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`|``6.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`|``7.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|``8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 5,762
`|``9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`12.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`13.`Earned`Premiums````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````
`|`````(Sch`P,`Part`1)` | 69,307 | 45,670 | 29,430 | 24,423 | 17,168 | 12,044 | 11,626
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| |
#--------------#--------------#--------------| 12 |
| | | | |
| 9 | 10 | 11 | Current Year |
| | | | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | 10 |
| 0 | 0 | 0 | 39 |
| 0 | 0 | 0 | (69)|
| 0 | 0 | 0 | (71)|
| 0 | 0 | 0 | (83)|
| 0 | 0 | 0 | (15)|
| 0 | 0 | 0 | (26)|
| 9,975 | 10,004 | 9,985 | (20)|
| 3,942 | 4,742 | 4,774 | 32 |
| X X X | 4,674 | 5,004 | 330 |
| X X X | X X X | 5,843 | 5,843 |
>-------------->-------------->--------------|--------------|
| 5,970 |
#--------------#--------------#--------------|--------------|
|``````````````|``````````````|``````````````|``````````````|
| 8,042 | 4,691 | 5,970 | X X X |
>-------------->-------------->-------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2A
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| | CUMULATIVE PREMIUMS EARNED CEDED AT YEAR END ($000 OMITTED)
| 1 |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| | 2 | 3 | 4 | 5 | 6 | 7 | 8
| | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`|``1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``3.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`|``4.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|``5.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`|``6.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`|``7.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|``8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 675
`|``9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`12.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`13.`Earned`Premiums````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````
`|`````(Sch`P,`Part`1)` | 20,533 | 15,513 | 10,438 | 8,559 | 5,206 | 3,459 | 5,243
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| 12 |
#--------------#--------------#--------------| Current Year |
| 9 | 10 | 11 | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 3,782 | 3,776 | 3,782 | 7 |
| 61 | 214 | 214 | 0 |
| X X X | 579 | 857 | 278 |
| X X X | X X X | 4 | 4 |
>-------------->-------------->--------------|--------------|
| 289 |
#--------------#--------------#--------------|--------------|
|``````````````|``````````````|``````````````|``````````````|
| 3,169 | 639 | 289 | X X X |
>-------------->-------------->-------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 6R - PRODUCTS LIABILITY - CLAIMS-MADE
SECTION 1B
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| 1 | CUMULATIVE PREMIUMS EARNED DIRECT AND ASSUMED AT YEAR END ($000 OMITTED)
| Years in |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| Which Premiums | | | | | | |
| Were Earned | 2 | 3 | 4 | 5 | 6 | 7 | 8
| and Losses | | | | | | |
| Were Incurred | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`|``1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``3.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`|``4.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|``5.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`|``6.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`|``7.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|``8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 107
`|``9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`12.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`13.`Earned`Premiums````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````
`|`````(Sch`P,`Part`1)` | 14 | 234 | 310 | 294 | 285 | 104 | 118
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| |
#--------------#--------------#--------------| 12 |
| | | | |
| 9 | 10 | 11 | Current Year |
| | | | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 107 | 107 | 107 | 0 |
| 64 | 97 | 97 | 0 |
| X X X | 44 | 44 | 0 |
| X X X | X X X | 10 | 10 |
>-------------->-------------->--------------|--------------|
| 10 |
#--------------#--------------#--------------|--------------|
|``````````````|``````````````|``````````````|``````````````|
| 62 | 78 | 10 | X X X |
>-------------->-------------->-------------->-------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2B
<S> <C> <C> <C> <C> <C> <C> <C>
!------------------------#--------------------------------------------------------------------------------------------------------
| | CUMULATIVE PREMIUMS EARNED CEDED AT YEAR END ($000 OMITTED)
| 1 |--------------#--------------#--------------#--------------#--------------#--------------#--------------
| | 2 | 3 | 4 | 5 | 6 | 7 | 8
| | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993
|------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------
`|``1.`Prior` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``2.`1987` | 0 | 0 | 0 | 0 | 0 | 0 | 0
`|``3.`1988` | X X X | 0 | 0 | 0 | 0 | 0 | 0
`|``4.`1989` | X X X | X X X | 0 | 0 | 0 | 0 | 0
`|``5.`1990` | X X X | X X X | X X X | 0 | 0 | 0 | 0
`|``6.`1991` | X X X | X X X | X X X | X X X | 0 | 0 | 0
`|``7.`1992` | X X X | X X X | X X X | X X X | X X X | 0 | 0
`|``8.`1993` | X X X | X X X | X X X | X X X | X X X | X X X | 0
`|``9.`1994` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.`1995` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.`1996` | X X X | X X X | X X X | X X X | X X X | X X X | X X X
|------------------------>-------------->-------------->-------------->-------------->-------------->-------------->--------------
`|`12.`Total`
|------------------------#--------------#--------------#--------------#--------------#--------------#--------------#--------------
`|`13.`Earned`Premiums````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````|``````````````
`|`````(Sch`P,`Part`1)` | 0 | 0 | 0 | 0 | 0 | 0 | 0
------------------------->-------------->-------------->-------------->-------------->-------------->-------------->--------------
<C> <C> <C> <C>
- - ---------------------------------------------#--------------#
| 12 |
#--------------#--------------#--------------| Current Year |
| 9 | 10 | 11 | Premiums |
| 1994 | 1995 | 1996 | Earned |
|--------------|--------------|--------------|--------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| X X X | 0 | 0 | 0 |
| X X X | X X X | 0 | 0 |
>-------------->-------------->--------------|--------------|
| 0 |
#--------------#--------------#--------------|--------------|
|``````````````|``````````````|``````````````|``````````````|
| 0 | 0 | 0 | X X X |
>-------------->-------------->-------------->-------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 7A - PRIMARY LOSS SENSITIVE CONTRACTS
($000 OMITTED)
SECTION 1
<S> <C> <C>
!---------------------------------------------------------------------------------------------#---------------#---------------
| | 2 | 3
| | | Net Losses
| | Total Net | and Expenses
| Schedule P - Part 1 | Losses and | Unpaid on
| | Expenses |Loss Sensitive
| | Unpaid | Contracts
|---------------------------------------------------------------------------------------------|---------------|---------------
`|``1.`Homeowners/Farmowners` | 73,545 | 0
`|``2.`Private`Passenger`Auto`Liability/Medical` | 356,234 | 0
`|``3.`Commercial` Auto/Truck`Liability/Medical` | 319,236 | 2,807
`|``4.`Workers'`Compensation` | 1,554,939 | 214,077
`|``5.`Commercial`Multiple`Peril` | 1,185,393 | 6,030
`|``6.`Medical`Malpractice`-`Occurrence` | 3,161 | 0
`|``7.`Medical`Malpractice`-`Claims-made` | 624 | 0
`|``8.`Special`Liability` | 31,146 | 0
`|``9.`Other`Liability`-`Occurrence` | 671,247 | 31,981
`|`10.`Other`Liability`-`Claims-made` | 12,294 | 3
`|`11.`Special`Property` | 71,352 | 1
`|`12.`Auto`Physical`Damage` | 33,735 | 3
`|`13.`Fidelity/Surety` | 71,363 | 0
`|`14.`Other` | 411 | 0
`|`15.`International` | 137,230 | 0
`|`16.`Reinsurance`A` | X X X | X X X
`|`17.`Reinsurance`B` | X X X | X X X
`|`18.`Reinsurance`C` | X X X | X X X
`|`19.`Reinsurance`D` | X X X | X X X
`|`20.`Products`Liability`-`Occurrence` | 95,695 | 3,151
`|`21.`Products`Liability`-`Claims-made` | 1,128 | 0
`|`22.`Financial`Guaranty/Mortgage`Guaranty` | 115 | 0
`|---------------------------------------------------------------------------------------------|---------------|---------------
`|`23.`Totals` | 4,618,848 | 258,053
---------------------------------------------------------------------------------------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| 4 | 5 | 6 | 7 |
| | | | |
|Loss Sensitive | Total Net | Net Premiums |Loss Sensitive |
| as Percentage | Premiums | Written on | as Percentage |
| of Total | Written |Loss Sensitive | of Total |
| | | Contracts | |
|---------------|---------------|---------------|---------------|
| 0.0 | 166,585 | 0 | 0.0 |
| 0.0 | 288,033 | 0 | 0.0 |
| 0.9 | 196,390 | 1,739 | 0.9 |
| 13.8 | 194,313 | 12,045 | 6.2 |
| 0.5 | 723,422 | 373 | 0.1 |
| 0.0 | 0 | 0 | 0.0 |
| 0.0 | 0 | 0 | 0.0 |
| 0.0 | 21,325 | 0 | 0.0 |
| 4.8 | 105,416 | 1,650 | 1.6 |
| 0.0 | 5,568 | 0 | 0.0 |
| 0.0 | 181,155 | 12 | 0.0 |
| 0.0 | 218,339 | 65 | 0.0 |
| 0.0 | 173,697 | 0 | 0.0 |
| 0.0 | 186 | 0 | 0.0 |
| 0.0 | 142,272 | 0 | 0.0 |
| X X X | X X X | X X X | X X X |
| X X X | X X X | X X X | X X X |
| X X X | X X X | X X X | X X X |
| X X X | X X X | X X X | X X X |
| 3.3 | 5,972 | 111 | 1.9 |
| 0.0 | 78 | 0 | 0.0 |
| 0.0 | 0 | 0 | 0.0 |
|---------------|---------------|---------------|---------------|
| 5.6 | 2,422,751 | 15,995 | 0.7 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#-----------------------------------------------------------------------------------------------
| 1 | INCURRED LOSSES AND ALLOCATED EXPENSES REPORTED AT YEAR END ($000 OMITTED)
| |---------------#---------------#---------------#---------------#---------------#---------------
| Year in Which | 2 | 3 | 4 | 5 | 6 | 7
| Policies Were | | | | | |
| Issued | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------
`|``1.```Prior` | 0 | 0 | 0 | 0 | 0 | 0
`|``2.```1987` | 0 | 0 | 0 | 0 | 0 | 0
`|``3.```1988` | X X X | 0 | 0 | 0 | 0 | 0
`|``4.```1989` | X X X | X X X | 0 | 0 | 0 | 0
`|``5.```1990` | X X X | X X X | X X X | 0 | 0 | 0
`|``6.```1991` | X X X | X X X | X X X | X X X | 0 | 0
`|``7.```1992` | X X X | X X X | X X X | X X X | X X X | 0
`|``8.```1993` | X X X | X X X | X X X | X X X | X X X | X X X
`|``9.```1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.```1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.```1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
- - ----------------------------------------------------------------#
|
#---------------#---------------#---------------#---------------|
| 8 | 9 | 10 | 11 |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
|---------------|---------------|---------------|---------------|
| 118,800 | 104,250 | 91,150 | 79,506 |
| 130,647 | 131,535 | 129,055 | 128,659 |
| 169,221 | 168,833 | 166,520 | 161,681 |
| 175,335 | 172,712 | 171,241 | 166,774 |
| 124,716 | 126,758 | 125,451 | 121,571 |
| 68,332 | 66,980 | 68,319 | 67,652 |
| 34,267 | 41,073 | 40,915 | 41,436 |
| 10,221 | 24,258 | 24,340 | 24,222 |
| X X X | 10,781 | 21,569 | 16,899 |
| X X X | X X X | 12,934 | 22,597 |
| X X X | X X X | X X X | 9,964 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 3
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#-----------------------------------------------------------------------------------------------
| 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES FOR LOSSES AND ALLOCATED EXPENSES AT YEAR END ($000
| |---------------#---------------#---------------#---------------#---------------#---------------
| Year in Which | 2 | 3 | 4 | 5 | 6 | 7
| Policies Were | | | | | |
| Issued | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------
`|``1.```Prior` | 0 | 0 | 0 | 0 | 0 | 0
`|``2.```1987` | 0 | 0 | 0 | 0 | 0 | 0
`|``3.```1988` | X X X | 0 | 0 | 0 | 0 | 0
`|``4.```1989` | X X X | X X X | 0 | 0 | 0 | 0
`|``5.```1990` | X X X | X X X | X X X | 0 | 0 | 0
`|``6.```1991` | X X X | X X X | X X X | X X X | 0 | 0
`|``7.```1992` | X X X | X X X | X X X | X X X | X X X | 0
`|``8.```1993` | X X X | X X X | X X X | X X X | X X X | X X X
`|``9.```1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.```1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.```1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
- - ----------------------------------------------------------------#
OMITTED) |
#---------------#---------------#---------------#---------------|
| 8 | 9 | 10 | 11 |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
|---------------|---------------|---------------|---------------|
| 37,120 | 37,636 | 41,473 | 35,418 |
| 13,102 | 13,695 | 12,978 | 11,979 |
| 17,462 | 18,750 | 19,139 | 14,231 |
| 42,245 | 38,661 | 37,931 | 29,395 |
| 28,366 | 27,344 | 25,722 | 20,894 |
| 13,847 | 12,399 | 12,708 | 11,305 |
| 6,858 | 7,168 | 7,062 | 7,985 |
| 3,460 | 8,428 | 6,764 | 7,129 |
| X X X | 6,586 | 10,064 | 4,982 |
| X X X | X X X | 7,813 | 9,819 |
| X X X | X X X | X X X | 6,343 |
- - ---------------->--------------->--------------->--------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 7A - PRIMARY LOSS SENSITIVE CONTRACTS (Continued)
SECTION 4
<S> <C> <C> <C> <C> <C> <C>
!-------------------#-----------------------------------------------------------------------------------------------------
| 1 | NET EARNED PREMIUMS REPORTED AT YEAR END ($000 OMITTED)
| |----------------#----------------#----------------#----------------#----------------#----------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7
| Policies Were | | | | | |
| Issued | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|-------------------|----------------|----------------|----------------|----------------|----------------|----------------
`|``1.```Prior` | 25,760 | 8,859 | 5,871 | 7,808 | 1,098 | 1,363
`|``2.```1987` | 95,683 | 121,539 | 130,080 | 157,125 | 156,940 | 154,196
`|``3.```1988` | X X X | 99,606 | 137,018 | 172,380 | 179,405 | 179,407
`|``4.```1989` | X X X | X X X | 110,075 | 243,172 | 258,138 | 260,315
`|``5.```1990` | X X X | X X X | X X X | 65,665 | 151,443 | 153,830
`|``6.```1991` | X X X | X X X | X X X | X X X | 46,279 | 78,614
`|``7.```1992` | X X X | X X X | X X X | X X X | X X X | 31,891
`|``8.```1993` | X X X | X X X | X X X | X X X | X X X | X X X
`|``9.```1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.```1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.```1996` | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->---------------->---------------->---------------->---------------->---------------->----------------
<C> <C> <C> <C>
- - --------------------------------------------------------------------#
|
#----------------#----------------#----------------#----------------|
| 8 | 9 | 10 | 11 |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
|----------------|----------------|----------------|----------------|
| (1,915)| (692)| 676 | 168 |
| 153,219 | 152,148 | 151,014 | 147,320 |
| 170,575 | 166,055 | 162,437 | 160,016 |
| 241,159 | 234,700 | 233,818 | 232,459 |
| 152,233 | 146,977 | 146,270 | 143,981 |
| 85,812 | 82,036 | 79,668 | 79,288 |
| 53,456 | 52,873 | 51,917 | 51,897 |
| 28,188 | 38,469 | 31,837 | 30,184 |
| X X X | 16,738 | 28,174 | 24,842 |
| X X X | X X X | 17,957 | 24,108 |
| X X X | X X X | X X X | 10,165 |
>---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 5
<S> <C> <C> <C> <C> <C> <C>
!-------------------#-----------------------------------------------------------------------------------------------------
| 1 | NET RESERVE FOR PREMIUM ADJUSTMENTS AND ACCRUED RETROSPECTIVE PREMIUMS AT YEAR END ($000 OMITTED)
| |----------------#----------------#----------------#----------------#----------------#----------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7
| Policies Were | | | | | |
| Issued | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|-------------------|----------------|----------------|----------------|----------------|----------------|----------------
`|``1.```Prior` | 0 | 0 | 0 | 0 | 0 | 0
`|``2.```1987` | 0 | 0 | 0 | 0 | 0 | 0
`|``3.```1988` | X X X | 0 | 0 | 0 | 0 | 0
`|``4.```1989` | X X X | X X X | 0 | 0 | 0 | 0
`|``5.```1990` | X X X | X X X | X X X | 0 | 0 | 0
`|``6.```1991` | X X X | X X X | X X X | X X X | 0 | 0
`|``7.```1992` | X X X | X X X | X X X | X X X | X X X | 0
`|``8.```1993` | X X X | X X X | X X X | X X X | X X X | X X X
`|``9.```1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.```1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.```1996` | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->---------------->---------------->---------------->---------------->---------------->----------------
<C> <C> <C> <C>
- - --------------------------------------------------------------------#
|
#----------------#----------------#----------------#----------------|
| 8 | 9 | 10 | 11 |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
|----------------|----------------|----------------|----------------|
| 254 | 0 | 0 | 0 |
| 5,769 | 3,820 | 2,661 | 958 |
| 10,723 | 5,793 | 2,296 | 151 |
| 15,923 | 8,392 | 5,690 | 4,322 |
| 18,197 | 7,484 | 5,661 | 4,814 |
| 10,273 | 3,330 | 463 | 120 |
| 4,198 | 5,548 | 2,038 | 696 |
| 1,617 | 2,784 | 2,777 | 813 |
| X X X | 1,678 | (549)| 1,688 |
| X X X | X X X | 1,213 | (5,795)|
| X X X | X X X | X X X | (1,807)|
>---------------->---------------->---------------->---------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 7B - REINSURANCE LOSS SENSITIVE CONTRACTS
($000 OMITTED)
SECTION 1
<S> <C> <C>
!---------------------------------------------------------------------------------------------#---------------#---------------
| | 2 | 3
| | | Net Losses
| | Total Net | and Expenses
| Schedule P - Part 1 | Losses and | Unpaid on
| | Expenses |Loss Sensitive
| | Unpaid | Contracts
|---------------------------------------------------------------------------------------------|---------------|---------------
`|``1.`Homeowners/Farmowners` | 73,545 |
`|``2.`Private`Passenger`Auto`Liability/Medical` | 356,234 |
`|``3.`Commercial` Auto/Truck`Liability/Medical` | 319,236 | 706
`|``4.`Workers'`Compensation` | 1,554,939 |
`|``5.`Commercial`Multiple`Peril` | 1,185,393 |
`|``6.`Medical`Malpractice`-`Occurrence` | 3,161 |
`|``7.`Medical`Malpractice`-`Claims-made` | 624 |
`|``8.`Special`Liability` | 31,146 |
`|``9.`Other`Liability`-`Occurrence` | 671,247 | 1,145
`|`10.`Other`Liability`-`Claims-made` | 12,294 |
`|`11.`Special`Property` | 71,352 |
`|`12.`Auto`Physical`Damage` | 33,735 |
`|`13.`Fidelity/Surety` | 71,363 |
`|`14.`Other` | 411 |
`|`15.`International` | 137,230 |
`|`16.`Reinsurance`A` | 90,326 |
`|`17.`Reinsurance`B` | 129,170 |
`|`18.`Reinsurance`C` | 1,631 |
`|`19.`Reinsurance`D` | 3,906 |
`|`20.`Products`Liability`-`Occurrence` | 95,695 |
`|`21.`Products`Liability`-`Claims-made` | 1,128 |
`|`22.`Financial`Guaranty/Mortgage`Guaranty` | 115 |
`|---------------------------------------------------------------------------------------------|---------------|---------------
`|`23.`Totals` | 4,843,881 | 1,851
---------------------------------------------------------------------------------------------->--------------->---------------
<C> <C> <C> <C>
#---------------#---------------#---------------#---------------#
| 4 | 5 | 6 | 7 |
| | | | |
|Loss Sensitive | Total Net | Net Premiums |Loss Sensitive |
| as Percentage | Premiums | Written on | as Percentage |
| of Total | Written |Loss Sensitive | of Total |
| | | Contracts | |
|---------------|---------------|---------------|---------------|
| 0.0 | 166,585 | | 0.0 |
| 0.0 | 288,033 | | 0.0 |
| 0.2 | 196,390 | 378 | 0.2 |
| 0.0 | 194,313 | | 0.0 |
| 0.0 | 723,422 | | 0.0 |
| 0.0 | | | 0.0 |
| 0.0 | | | 0.0 |
| 0.0 | 21,325 | | 0.0 |
| 0.2 | 105,416 | 274 | 0.3 |
| 0.0 | 5,568 | | 0.0 |
| 0.0 | 181,155 | | 0.0 |
| 0.0 | 218,339 | | 0.0 |
| 0.0 | 173,697 | | 0.0 |
| 0.0 | 186 | | 0.0 |
| 0.0 | 142,272 | | 0.0 |
| 0.0 | 30,386 | | 0.0 |
| 0.0 | 50,585 | | 0.0 |
| 0.0 | (457)| | 0.0 |
| 0.0 | X X X | X X X | X X X |
| 0.0 | 5,972 | | 0.0 |
| 0.0 | 78 | | 0.0 |
| 0.0 | | | 0.0 |
|---------------|---------------|---------------|---------------|
| 0.0 | 2,503,265 | 652 | 0.0 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 2
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#-----------------------------------------------------------------------------------------------
| 1 |INCURRED LOSSES AND ALLOCATED EXPENSES REPORTED AT YEAR END ($000 OMITTED)
| |---------------#---------------#---------------#---------------#---------------#---------------
| Year in Which | 2 | 3 | 4 | 5 | 6 | 7
| Policies Were | | | | | |
| Issued | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------
`|``1.```Prior` | 0 | 0 | 0 | 0 | 0 | 0
`|``2.```1987` | 0 | 0 | 0 | 0 | 0 | 0
`|``3.```1988` | X X X | 0 | 0 | 0 | 0 | 0
`|``4.```1989` | X X X | X X X | 0 | 0 | 0 | 0
`|``5.```1990` | X X X | X X X | X X X | 0 | 0 | 0
`|``6.```1991` | X X X | X X X | X X X | X X X | 0 | 0
`|``7.```1992` | X X X | X X X | X X X | X X X | X X X | 0
`|``8.```1993` | X X X | X X X | X X X | X X X | X X X | X X X
`|``9.```1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.```1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.```1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
- - ----------------------------------------------------------------#
|
#---------------#---------------#---------------#---------------|
| 8 | 9 | 10 | 11 |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
|---------------|---------------|---------------|---------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 52 | 209 | 209 | 142 |
| X X X | 402 | 1,112 | 1,112 |
| X X X | X X X | 494 | 1,114 |
| X X X | X X X | X X X | 194 |
>--------------->--------------->--------------->--------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 3
<S> <C> <C> <C> <C> <C> <C>
!-----------------------------#-----------------------------------------------------------------------------------------------
| 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES FOR LOSSES AND ALLOCATED EXPENSES AT YEAR END ($000
| |---------------#---------------#---------------#---------------#---------------#---------------
| Year in Which | 2 | 3 | 4 | 5 | 6 | 7
| Policies Were | | | | | |
| Issued | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------
`|``1.```Prior` | 0 | 0 | 0 | 0 | 0 | 0
`|``2.```1987` | 0 | 0 | 0 | 0 | 0 | 0
`|``3.```1988` | X X X | 0 | 0 | 0 | 0 | 0
`|``4.```1989` | X X X | X X X | 0 | 0 | 0 | 0
`|``5.```1990` | X X X | X X X | X X X | 0 | 0 | 0
`|``6.```1991` | X X X | X X X | X X X | X X X | 0 | 0
`|``7.```1992` | X X X | X X X | X X X | X X X | X X X | 0
`|``8.```1993` | X X X | X X X | X X X | X X X | X X X | X X X
`|``9.```1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.```1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.```1996` | X X X | X X X | X X X | X X X | X X X | X X X
------------------------------>--------------->--------------->--------------->--------------->--------------->---------------
<C> <C> <C> <C>
- - ----------------------------------------------------------------#
OMITTED) |
#---------------#---------------#---------------#---------------|
| 8 | 9 | 10 | 11 |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
|---------------|---------------|---------------|---------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 52 | 209 | 209 | 142 |
| X X X | 52 | 762 | 762 |
| X X X | X X X | 132 | 753 |
| X X X | X X X | X X X | 109 |
>--------------->--------------->--------------->--------------->
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form 2
COMBINED ANNUAL STATEMENT FOR THE YEAR 1996 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED PROPERTY AND CASUALTY INSURERS
SCHEDULE P - PART 7B - REINSURANCE LOSS SENSITIVE CONTRACTS (Continued)
SECTION 4
<S> <C> <C> <C> <C> <C> <C>
!-------------------#-----------------------------------------------------------------------------------------------------
| 1 | NET EARNED PREMIUMS REPORTED AT YEAR END ($000 OMITTED)
| |----------------#----------------#----------------#----------------#----------------#----------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7
| Policies Were | | | | | |
| Issued | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|-------------------|----------------|----------------|----------------|----------------|----------------|----------------
`|``1.```Prior` | 0 | 0 | 0 | 0 | 0 | 0
`|``2.```1987` | 0 | 0 | 0 | 0 | 0 | 0
`|``3.```1988` | X X X | 0 | 0 | 0 | 0 | 0
`|``4.```1989` | X X X | X X X | 0 | 0 | 0 | 0
`|``5.```1990` | X X X | X X X | X X X | 0 | 0 | 0
`|``6.```1991` | X X X | X X X | X X X | X X X | 0 | 0
`|``7.```1992` | X X X | X X X | X X X | X X X | X X X | 0
`|``8.```1993` | X X X | X X X | X X X | X X X | X X X | X X X
`|``9.```1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.```1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.```1996` | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->---------------->---------------->---------------->---------------->---------------->----------------
<C> <C> <C> <C>
- - --------------------------------------------------------------------#
|
#----------------#----------------#----------------#----------------|
| 8 | 9 | 10 | 11 |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
|----------------|----------------|----------------|----------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 69 | 275 | 275 | 188 |
| X X X | 527 | 1,450 | 1,449 |
| X X X | X X X | 641 | 1,445 |
| X X X | X X X | X X X | 252 |
>---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 5
<S> <C> <C> <C> <C> <C> <C>
!-------------------#-----------------------------------------------------------------------------------------------------
| 1 |NET RESERVE FOR PREMIUM ADJUSTMENTS AND ACCRUED RETROSPECTIVE PREMIUMS AT YEAR END ($000 OMITTED)
| |----------------#----------------#----------------#----------------#----------------#----------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7
| Policies Were | | | | | |
| Issued | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|-------------------|----------------|----------------|----------------|----------------|----------------|----------------
`|``1.```Prior` | 0 | 0 | 0 | 0 | 0 | 0
`|``2.```1987` | 0 | 0 | 0 | 0 | 0 | 0
`|``3.```1988` | X X X | 0 | 0 | 0 | 0 | 0
`|``4.```1989` | X X X | X X X | 0 | 0 | 0 | 0
`|``5.```1990` | X X X | X X X | X X X | 0 | 0 | 0
`|``6.```1991` | X X X | X X X | X X X | X X X | 0 | 0
`|``7.```1992` | X X X | X X X | X X X | X X X | X X X | 0
`|``8.```1993` | X X X | X X X | X X X | X X X | X X X | X X X
`|``9.```1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.```1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.```1996` | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->---------------->---------------->---------------->---------------->---------------->----------------
<C> <C> <C> <C>
- - --------------------------------------------------------------------#
|
#----------------#----------------#----------------#----------------|
| 8 | 9 | 10 | 11 |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
|----------------|----------------|----------------|----------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| X X X | 0 | 0 | 0 |
| X X X | X X X | 0 | 0 |
| X X X | X X X | X X X | 0 |
>---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 6
<S> <C> <C> <C> <C> <C> <C>
!-------------------#-----------------------------------------------------------------------------------------------------
| 1 | INCURRED ADJUSTABLE COMMISSIONS REPORTED AT YEAR END ($000 OMITTED)
| |----------------#----------------#----------------#----------------#----------------#----------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7
| Policies Were | | | | | |
| Issued | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|-------------------|----------------|----------------|----------------|----------------|----------------|----------------
`|``1.```Prior` | 0 | 0 | 0 | 0 | 0 | 0
`|``2.```1987` | 0 | 0 | 0 | 0 | 0 | 0
`|``3.```1988` | X X X | 0 | 0 | 0 | 0 | 0
`|``4.```1989` | X X X | X X X | 0 | 0 | 0 | 0
`|``5.```1990` | X X X | X X X | X X X | 0 | 0 | 0
`|``6.```1991` | X X X | X X X | X X X | X X X | 0 | 0
`|``7.```1992` | X X X | X X X | X X X | X X X | X X X | 0
`|``8.```1993` | X X X | X X X | X X X | X X X | X X X | X X X
`|``9.```1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.```1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.```1996` | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->---------------->---------------->---------------->---------------->---------------->----------------
<C> <C> <C> <C>
- - --------------------------------------------------------------------#
|
#----------------#----------------#----------------#----------------|
| 8 | 9 | 10 | 11 |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
|----------------|----------------|----------------|----------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| X X X | 0 | 0 | 0 |
| X X X | X X X | 0 | 0 |
| X X X | X X X | X X X | 0 |
>---------------->---------------->---------------->---------------->
</TABLE>
<TABLE>
<CAPTION>
SECTION 7
<S> <C> <C> <C> <C> <C> <C>
!-------------------#-----------------------------------------------------------------------------------------------------
| 1 | RESERVES FOR COMMISSION ADJUSTMENTS AT YEAR END ($000 OMITTED)
| |----------------#----------------#----------------#----------------#----------------#----------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7
| Policies Were | | | | | |
| Issued | 1987 | 1988 | 1989 | 1990 | 1991 | 1992
|-------------------|----------------|----------------|----------------|----------------|----------------|----------------
`|``1.```Prior` | 0 | 0 | 0 | 0 | 0 | 0
`|``2.```1987` | 0 | 0 | 0 | 0 | 0 | 0
`|``3.```1988` | X X X | 0 | 0 | 0 | 0 | 0
`|``4.```1989` | X X X | X X X | 0 | 0 | 0 | 0
`|``5.```1990` | X X X | X X X | X X X | 0 | 0 | 0
`|``6.```1991` | X X X | X X X | X X X | X X X | 0 | 0
`|``7.```1992` | X X X | X X X | X X X | X X X | X X X | 0
`|``8.```1993` | X X X | X X X | X X X | X X X | X X X | X X X
`|``9.```1994` | X X X | X X X | X X X | X X X | X X X | X X X
`|`10.```1995` | X X X | X X X | X X X | X X X | X X X | X X X
`|`11.```1996` | X X X | X X X | X X X | X X X | X X X | X X X
-------------------->---------------->---------------->---------------->---------------->---------------->----------------
<C> <C> <C> <C>
- - --------------------------------------------------------------------#
|
#----------------#----------------#----------------#----------------|
| 8 | 9 | 10 | 11 |
| | | | |
| 1993 | 1994 | 1995 | 1996 |
|----------------|----------------|----------------|----------------|
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 |
| X X X | 0 | 0 | 0 |
| X X X | X X X | 0 | 0 |
| X X X | X X X | X X X | 0 |
>---------------->---------------->---------------->---------------->
</TABLE>
